No one likes to read pages of fine print, but sometimes skipping over it can lead to a financial disaster. Here’s what to look for when getting yourself into a contract or a loan.
Auto Insurance
Insurance policies can be tricky if you’re not careful. Find out what’s actually covered, what could make your premiums go up, what you can expect to pay in deductibles, and what could void your coverage.
When buying car insurance, make sure you understand what will happen if you total your car; some companies pay “actual cash value” of your car, while others pay an “agreed upon amount.” So, before you assume that you will get your car loan paid off when it’s totaled, read through your contract. Also, find out whether you can get quality repairs after a non-totaling accident: will your insurance company guarantee original equipment or aftermarket parts? How much will your premium increase after an accident? Are you covered if a friend wrecks your car?
Health Insurance
Sixty percent of people who go bankrupt do so due to mounting medical bills. While health care reform works to demystify and protect you from baffling fine print, not understanding your health insurance can lead to disaster. Make sure you know exactly what your policy covers, whether benefits are capped at a dollar amount every year, and whether you need a referral to visit a specialist. Find out what you can expect to pay for the birth of a child or other medical events. Make sure you know when coverage may be denied—for example, if you become overweight or get an infection from an unnecessary procedure.
Life Insurance
Make sure you know how long your life insurance policy lasts; term life insurance only lasts 5, 10, or maybe 20 years before you have to buy a new (more expensive) policy after undergoing a new medical evaluation. Also be sure to read over restricted activities on your policy; for example, dying in a skydiving accident or other reckless activity may not be covered. Your premiums may also go up if you are a a race car driver, or involved in other high-risk activities. In 2010 a woman was denied benefits from her husband’s life insurance policy because he was intoxicated when he rolled his tractor.
Loans
According to the Project on Student Debt, the average graduate leaves college shouldering $21,900 in student loans. The New York Times notes that types of student loans differ vastly; interest rates can fluctuate, fees may apply, and some lenders ask students to sign promissory notes before being told what interest rate they will be charged; typical rates can range from 7 to 12 percent. Student Lending Analytics is a website that gives a rating to student loans. Avoid scams by applying for loans only with legitimate lenders.
When shopping for a car or home loan, make sure you know whether your interest rate is fixed or adjustable. If you have an adjustable interest rate, your initial rate may be enticingly low— but then grow at to alarming rate that leaves you with a monthly payment you can’t afford. Also find out whether you could be penalized for paying off the loan early. Will making extra payments on your loan actually count toward your principal amount, or count toward future payments?
Credit Cards
Credit cards are sneaky. Make sure you know whether your rate is fixed, and how much it could go up if you make a late payment. Also be aware that a fixed APR isn’t necessarily that, according to Forbes, it only means that you have the right to be notified if your interest rate is going to change for reasons other than those specified in your terms—so if your terms stated that the APR will go up after the introductory period, you won’t be notified when your rate goes up. Some companies may even charge you an “inactivity fee” for not spending a specific amount each year. Also make sure the card’s no-annual-fee claim applies to more than just the first year.
Car rental insurance can be confusing, and you probably buy it just to make sure your covered. As it turns out, car rental insurance seems to be one of many insurances you can skip. Check (thoroughly) with your own car insurance company about whether you are already covered for the rental—and whether your policy covers rentals in foreign countries, for business trips, and for long-term rentals. While insurance through the rental company could help you stay in good standing with your insurance company at home, many consider this insurance a rip-off at $9-36 per day.
Make sure you read over an apartment or home rental agreement thoroughly, and get answers to any questions you may have from your landlord in writing. Know what happens if you have to move out early, who pays for repairs and maintenance, and whether you can stay on a month-to-month basis once your contract is up or whether the contract renews automatically.
What Isn’t in the Fine Print
If something you think is important isn’t in your agreement, always ask a company rep and get things in writing. Keep records of everything, including copies of signed contracts and relevant receipts. If possible, have a lawyer look over any significant contract you are thinking about signing.
