Have you ever jumped at an introductory offer for Cable or Satellite TV only to regret your decision when the teaser offer is over? How many times have you clicked an ad or clipped a coupon for a special deal only to find that the product you really want is excluded from the offer? Have you ever stopped to think that when something is “on sale” there is always a self-interested motive on the part of the seller? Perhaps they made too many of the product or it is not selling well. Or maybe a retailer is willing to lose money on an item because they know that once you buy it you will buy other higher-priced products from them. This is not necessarily bad; it is how our free market system works. But it means we have to be on guard when dealing with “sales” and “rebates.”

I once bought a $40 printer for our office—what a deal! I was young, cocky and….cheap. It was my first purchase on behalf of my family business (what can I say? They turned me loose to early). Well, you know where this is going. I didn’t check the cost of replacement toner cartridges. They were $80. And, oh yeah, we went through about one a month. Needless to say that printer is now somewhere on the dust heap of discarded deals along with the brand new mower I got for $109 (lasted one season) and the used BMW I got a “great deal” on (replacement Bimmer parts are slightly more expensive than toner).  Let’s just say I am now wary of sales and have learned to look for the “bait” in rebate.

That’s why my newly found sixth sense was triggered when an online ad asked me to click for a rebate in exchange for packaging virtually every financial service I could want with one provider. The deal is basically this: if you sell your home with this firm’s real estate arm, finance your mortgage with them, let them do your title work AND place your insurance with them, they will give you back a big cut of the real estate commission. What could be wrong with that? It’s every financial transaction you need-on sale!

For me, the first red flag was that for both ethical and actuarial reasons my industry is strictly forbidden by regulators from offering “rebates” and most types of kickbacks for buying insurance. In this scenario the rules appear to be sidestepped by rebating a less-regulated transaction (real estate commissions). The second warning siren came from the fact that as an insurance agent I regularly encounter instances in which I have to stand up for the best interests of my policyholder against unreasonable requests by third parties (occasionally those third parties are mortgage lenders, real estate firms, or title agencies). If all of those services are provided by THE SAME party, who is going to look out for the consumer?

Here is a quick example: “Insurer  A” offers a great homeowners policy, a fantastic rate, and coverage that most competitors cannot match. “Insurer B” offers an okay value and decent coverage, but not as good as Insurer A. Which carrier is the right one for my client? If you ask me, I will say Insurer A every time. It is a no-brainer right? But what if I am not just an insurance agent? What if I am also a real estate firm, title agency, and lending institution? Now how do I answer? If I am getting commission on the real estate deal I will want to steer clear of insurers who inspect every home they insure (some do, some don’t) and those who are more picky about their underwriting standards, because if the insurer requires repairs to the home or points out deficiencies it could impair or delay my real estate deal. If I am a lender I will want a company that traditionally protects my interests well in a claim and gives me the most notice of any possible lapses in coverage or cancellation of the policy. This may or may not be the company that originally had the best value for the actual insurance consumer. These are just two of many possible conflicts of interest.  As you can see, the temptation for a “one stop” shop to offer an insurance policy that might not be in the consumer’s best interest is enormous.

That is not to allege that the organization in question is actually doing this. Perhaps appropriate safeguards are in place. But the fact remains that when one organization controls ALL of the variables and products in a customer’s financial life, it is inherently an anti-consumer situation. In this scenario there is absolutely zero incentive for the insurance agent to tell the consumer that their mortgage-lender’s demands are unreasonable (in fact there is a distinct dissincentive to do so!). There is no motivation for the closing agent to tell the consumer that the insurer appears to be charging twice what they see for most other similar deals. The is no reason that a real estate agent would suggest that a homeowner shop around for the best mortgage interest rate. They all work for the same institution. So…who is working for you?

The solution? Buy insurance from independent insurance agents, buy homes from Realtors, and get mortgages from lending institutions. These people know their trade and will serve you well.  Shop them and hold them accountable for finding you the deal that is best for you. Do not buy all of these services from one large organization that wants to pay you hundreds or even thousands of dollars to go with them. If they are paying you to do business with them this should be a red flag. One-stop shopping may be convenient but let’s keep it where it belongs. Grabbing, milk, batteries, and toilet paper all in one quick stop on the way home is great. Doing the same with the most important financial transactions of your life? Not so much.