by Joe Kirkpatrick

Anymore, it seems like about one half of what a person makes goes to pay for some type of insurance.  There is health insurance, homeowners insurance, life insurance, car insurance, disability insurance, and many other types of insurance you might be paying without even realizing it.  Today, I want to talk about what I feel is the all time widespread insurance rip off, and then talk about a new type of insurance you may need, and how to save you some money on it.

The biggest all time insurance rip off has to be credit life insurance.  This rip off has been around all of my adult life, and probably even before.  Credit life is insurance a bank, finance company, mortgage company, mobile home dealer, car dealer, and other places that finance items tries to sell to you.  If you should die while you are paying on the loan they make, credit life insurance will pay the loan off.  Now, the idea sounds really good, but unfortunately, paying for it is not so good.  Let me give you an example:  a 58 year old friend of mine with an $85,000 mortgage told me when he applied for the loan, they told him it would be $650 a month, but when the payment book came, it was $850 a month instead.  A red flag went up in my head, and I asked if maybe it was for taxes and homeowners insurance.  He told me it was for some other type of insurance.  I immediately knew he had been

conned into credit life insurance, which he was going to pay $200 a month for the next 30 years.  That would be $72,000 for credit life insurance over the life of the loan!  Credit life insurance is outrageously high, and the lender is paid a commission of up to 50% to sell it to you. 

Now, let me tell you why it is even a bigger rip off:  take my friend who has the $85,000 thirty year mortgage.  He pays the $200 a month for 25 years, dies, and his credit life insurance pays off his loan.  By that time, he would only owe maybe $8000 or $9000, so that is all his credit life policy has to pay.  Now, let me make the biggest point about credit life insurance:  The law states that a lender CANNOT make you purchase it as a condition of making you a loan!  If a loan officer says, "and with this loan, we would like for you to have credit life insurance," you can refuse and the lender cannot refuse to give you the loan based upon your refusal.

If you feel like you need to insure your mortgage, go to an insurance agent and by a term life insurance policy.  In my friends case, a term life policy for $100,000 with a "level" monthly rate from Prudential Insurance for a 58 year old non-smoking male in good health is $51.00 a month for 20 years. Wait - his mortgage is 30 years.  If he takes the $149 a month he is saving over the cost of term life vs. credit life insurance, puts it in a savings account with interest, at the end of 20 years, he will have over $40,000 in savings and won't need insurance for his mortgage anyway.  Plus, if he dies in 19 years (a white males average life expectancy is 77), his mortgage will be paid off, and his wife will have $50,000 left over from the term life insurance, plus about $38,000 in the savings account.  With credit life insurance, the mortgage would have been paid off and that is it.  Many lenders will let you drop credit life insurance off of an existing loan - check your loan papers to see if you have been conned by the credit life rip off!

GAP INSURANCE

The newest form of insurance is gap insurance.  What is "gap insurance"?  If you go buy a new car for $30,000 with no money down, and 6 months later an uninsured drunk with no insurance runs a red light and totals your car, your insurance company will only pay the book value, which is probably going to be about $24,000.  That means YOU owe the other $6000, even though the accident was not your fault. Gap insurance will take care of the "gap" (the $6000 your insurance company doesn't pay).  Now the problem:  New car dealers will probably charge you at least $20 per month for 72 months on a $30,000 car, which totals $1440.  I called Nationwide Insurance, and they will sell you the same amount gap insurance policy for a one-time fee of $250, for a savings of $1190.  Gap insurance is a good idea, but don't let the car dealer rip you off with an inflated price for it.

HOW MUCH DO YOU MAKE?

If you are a regular reader of my column, you will probably remember I have written several articles on finance and spending over the past couple of years.  Have you ever wondered what the difference is between the "haves" and the "have nots?"  The first thing that comes to mind is the "haves" make more money than you do.  In some cases that is true, but I have found it is not how much you make, but rather how you spend what you make.  I have been blessed to have always seemed to have a knack for having sound financial judgments, and now there is a series of books by a financial expert named Dave Ramsey who writes about many of the financial principals I have practiced. His books are written in a way that they are easily understood.  If you feel like you are sinking financially, I encourage you to buy one of Ramsey's books.  What I have talked to you about today are just a couple of things that can possibly save you hundreds of dollars a year, and with Ramsey's book, you can possibly save thousands a year more on top of that!
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