Friday, November 5, 2010

The Price of Free

From time to time we all get offers of free stuff, either as an invitation to buy into more for a price or in an attempt to cement loyalty. The front-end is almost always good, but the total deal can be costly. Let's look at some of the more common offers and how you can benefit from them.

Accidental Death Insurance

Your bank offers $1000 of free accidental death and dismemberment insurance with the option to buy more: from $25,000 at $2 per month to $300,000 at $25 per month. You can ignore the offer, sign up for the free piece, or select one of the paid options.

At a minimum, you should take the free part. Insurance is an investment, and as an investment it requires intelligent management and you need to really understand what is being offered. Accidental death accounts for a small fraction of deaths so the odds of a payout are low. Getting an insurance quote will tell you if the offer is competitive. The rest is cost benefit analysis. Buying the extra insurance is an economic decision.

The first thousand dollars is not. In exchange for your contact data, which the bank already has, your heirs have a small chance of collecting a modest policy. This is a no cost no brainer. Take the free piece and evaluate the rest.

Loyalty Programs

Somebody offers you a discount or goodies for your loyalty. You can recognize these because you take a loyalty card or key tab with a bar code for each transaction. The store gets a customized buying history and the assurance of you as a customer. You get some savings or offers.

This one is a tossup. Your buying history has value, your loyalty even more value, and the payback may or may not be worth it. If you don't want something traced back to you, skip the program and pay cash. If you have privacy concerns, this is probably A bad choice. If you are going to be a repeat customer anyway, these programs can save you money.

Credit Card Reward Programs

Reward programs are credit card versions of loyalty programs. As long as you don't buy what you don't need, eliminate interest by paying when due, and don't pay more for the card than the rewards, the program can make financial sense for you.

Bank Giveaways

When I refinanced my mortgage recently, the bank offered me $50 if I opened a free checking account and set up automatic payments through it. I didn't need the account, but I was going to set up an automatic payment system somewhere. I accepted the offer, set up an automated deposit to the checking account just ahead of their withdrawal, and applied the $50 to mortgage principal
Free Meal Seminars

This offer shows up as an in invitation to a free meal while listening to an expert speak on retirement planning or financial services. Do you like the restaurant? Does the topic interest you? Is the presenter really am expert? Do you have the time? If you answered yes to all these questions, consider going. if not, your time is worth more than the Chicken Alfredo, or it should be.


The business of business is business, but it cannot happen without you. These programs can be win- win --- the business has already assured their side of the win. If you pay attention, you can get some tangible benefits. If not, stay away because by default the business will win big at your expense. Don't let the program change your plan and never let it change your plan. As always, caveat emptor.

Jay Elkes

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