Clark's Consumer Action Center has been receiving a lot of questions about accelerated mortgage offers. People are wondering if these offers are a new kind of scam. Clark thinks "scam" is too strong of a word, but he does think this is a serious rip-off -- and he wants to show you how to avoid it! First, let's take a look at the offer. It arrives as a friendly letter inviting you to pay off your mortgage years quicker than you normally would. The deal is that you have to pay your bank or an appointed marketing company $200-$400 to set you up on a bi-weekly payment plan. It also stipulates that you'll be billed another couple bucks each time you make a payment, or alternately that you'll pay nothing up front but every bi-weekly payment will be assessed a fee. This plan will have you paying half your monthly mortgage payment every two weeks. That's equivalent to 26 half-payments in a year. At the end of year, the marketing company on behalf of your bank makes one additional payment toward your mortgage. So the end result is that you pay 13 months in a 12-month period. But because you probably paid an initial fee to set this up, the bank held some of your money all year long and got rich off the interest.

Here's what you should do instead. Clark wants you to keep making monthly mortgage payments and add one-twelfth extra in the additional principal box on your monthly coupon. So if your monthly payment is $1,200, pay $1,300 instead. That way you'll do for free what your bank wants to charge you for -- and you'll bring your principal down quicker. There's one more possible bank rip-off related to your mortgage that you should avoid. They're going to try to sell you "croak and choke" insurance -- otherwise known as mortgage life and disability insurance. It states that if you buy their policy and die, they'll pay your mortgage. But Clark sees two problems here. First, you're paying an insurance premium to protect the bank. At the time of your death, there may be better uses of your money for your heirs. So you're better off with a standard term life insurance policy. Second, the bank charges a premium that's about 10 times as much as your plain old life insurance policy. Sometimes Clark wonders where the ethics in banking have gone!

There is a lot of confusion these days over what types of insurance you really need. There are only three. But first let’s discuss the kinds of insurance you don’t need. One kind of insurance you should never buy is credit life insurance, also known as “croak and choke.” Mortgage life insurance is the technical term. The salespeople pretend it’s a great idea, claiming that if you die your debts are paid off. But how important is it to pay off your debts when you’re gone? Basically, with this insurance, the bank gets paid off and gets your money instead of your heirs. In addition, the premiums are about 10 times as high as traditional types of life insurance. Mortgage life’s cousin is credit life insurance, and you are pushed to get this when you buy a car or other big purchase. These are sold as protection for you, but really they provide protection for the bank. So, it’s essentially like putting lipstick on a pig. Maybe it looks better, but it’s still a pig. Another popular item is the variable annuity. It’s almost never a good idea to buy one of these because there are monstrous commissions. What about cancer insurance? If you get cancer, you need health insurance and term life insurance, and that’s it. And, if you can’t work and need replacement of your income, you want disability insurance. Those are the only three you need. All the others you can chuck. What about your car? You don’t need rental insurance when renting a car, first of all. If you get in an accident, you’ll owe regardless of whether you have insurance. And usually your credit cards or auto insurance company has some type of temporary rental car coverage. PEC or “personal effects coverage,” which covers things stolen out of your rental car, is not necessary either.

Have you heard of disability insurance? People are much more likely to have life insurance than disability insurance, which pays you in the event that you can’t work. We’re three times more likely to get injured on the job than to die during our key working years. It’s offered from employers, but it’s sometimes not such a good idea to get insurance from your employer. Because of an obscure federal law called ERISA, states can’t help you if you get insurance from an employer. If you get cheated on disability coverage from an employer, for example, the government can’t help you. Therefore, insurers know they can collect premiums and not pay on claims. So, you should buy your own disability policy. That way, you’re protected without question. Usually 70 to 75 percent of your income is recommended. And don't get a policy that uses the Social Security Administration's definition of an illness. It's very strict. Keep in mind that disability insurance is not cheap, however. So, you may have to trim how much you get. But if you’re getting it from a large employer now, you might get burned when the chips are down.