Saving You Money For Life

Most insurance companies offer the option to pay your premiums annually, semi-annually, quarterly or monthly (through an automatic bank draft). These various fractional modes of payment provide choice to the consumer–something that consumers should treasure, right? Not always.

If you choose anything other than the annual mode, most insurers charge additional amounts to cover the additional administrative costs of handling premium receipts more than once a year. In addition, these other methods of payment also mean that the insurer doesn’t get their money up front, and the time value of money also has its costs. It all sounds fair and reasonable. So what’s the problem?

First, insurers generally do not disclose the effective APR (annual percentage rate) associated with each of their ‘fractional’ premium modes. As a result, it’s downright difficult for consumers to determine whether the convenience of breaking up their annual cost into multiple payments using fractional premiums is reasonable–relative to paying annually.

More after the jump…

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