The Importance of Financial Literacy and How to Avoid Insurance Frauds
Whether you’re taking out a loan, starting a business, or just wanting to keep your assets safe, chances are you’re looking at insurance policies. They’re certainly necessary and helpful, but they’re also fertile ground for financial fraud. To keep yourself safe, you need to be financially literate and recognize the warning signs.
What is Financial Literacy?
The simplest definition of financial literacy is the ability to understand and effectively use various financial skills. Financial skills include, but are not limited to:
- tracking spending,
- financially managing a business,
- handling debt,
- retirement planning, etc.
Financial literacy also means navigating credit products like electronic transfers, credit cards, and debit cards. It means being familiar with various concepts that apply to your money, such as:
- interest and compound interest,
- time value of money,
- insurance, etc.
Why is it important?
A person’s financial literacy defines their relationship with money. Good financial literacy means fiscal responsibility and overall financial success. Financial illiteracy results in irresponsible spending and persistent financial trouble.
It’s about your long-term fiscal situation. Moreover, your financial savvy is what keeps you safe from fiscal fraud in all its forms. The most common form of fraud that regular citizens fall prey to is insurance fraud.
This mostly comes in the form of junk clauses. Junk insurance clauses are caveats in your contract that actually damage your finances. They’re extremely unlikely, riddled with exceptions, deliberately unclear, or otherwise “gray” so you end up paying unnecessary fees for insurance you can never actually claim.
Common insurance frauds
Broadly speaking, there are three main types: Consumer Credit Insurance, Guaranteed Asset Protection, and Mechanical Breakdown Insurance. Let’s take a brief look at each.
CCI is commonly sold by banks and insurance companies. It comes with credit cards and various loans. Sellers present it as required protection in case clients can’t meet their minimum monthly repayment. In truth, CCI is completely optional and you can exclude it from your credit card or loan application.
GAP comes with vehicle insurance. It’s supposed to cover the difference between the loan you took out to buy the vehicle and its market price at the time when you claim the insurance. The trick is, it applies only to comprehensive insurance. If you don’t have a comprehensive policy on your vehicle GAP is a non-claimable junk clause.
MBI is the infamous “extended warranty”. It applies to any goods that come with a warranty but are only practical for purchasing brand-new. Any second-hand used thrift or antique goods usually have exclusions to their warranties. Those exceptions mean that you wouldn’t be able to claim MBI on the goods anyway.
Avoiding insurance frauds
Now you might be wondering “Okay, how do I get my refund from insurance fraud?” and the answer is fairly simple. Review your contracts, consult a refund expert, and take the shady insurers to court.
Look at your credit card statements, loan statements, etc. Fraudulent insurance clauses can be recognized by the specific legalese they’re couched in. These are some of the typical phrases:
- add-on insurance
- CCI/ consumer credit insurance
- mechanical breakdown insurance
- extended warranty
- GAP insurance/ guaranteed asset protection
- loan protection
- mortgage protection
- loan termination insurance
- contents insurance
Improving your financial literacy
In addition to enlisting expert help, you can take some precautions on your own. There are several strategies to increase your financial literacy independently. These can be roughly divided into fiscal education and practicing fiscal skills.
Fiscal education can be acquired from various sources, including:
- professional consultations,
- targeted online content, etc.
Look for a format that fits your learning style and start getting informed.
Day-to-day ways of practicing fiscal skills can be:
- weekly or monthly household budgeting,
- contrasting income vs. spending,
- paying into a savings account every month,
- promptly paying bills,
- annually reviewing your credit report, etc.
In conclusion, proper financial literacy is your best tool in keeping your money safe long-term. Invest in your fiscal education and learn the shady legalese of fraudulent practices. Get refunds on current junk insurance with expert help, and bolster your knowledge for any future contracts you might consider.