Does the way I pay for my insurance affect my premiums?
This is a great question. In some sense, yes it does.
There is no difference in premiums paid for choosing different payment methods (cash, check, credit card, Debit). However, whether you choose to pay your premiums in installments (known as "pay", so: one pay, two pay, three pay, etc) or on a monthly payment plan, does affect the total amount of money that you will pay to the insurance company.
For some insurance companies, if you choose to pay your premium on a monthly payment plan, they apply what is called, finance or interest fee which could be up to 4% of your total annual premium, but if you are able and choose to pay the full amount of your premium, they might not apply any extra fee.
Let us look at a few examples:
You purchased a car insurance policy from company A and your total annual premium for that policy is $1500. If you decide to pay in full, company A will likely not charge you any extra fee, all you will have to pay is $1500. Even though paying a total amount at once for insurance can be painful and difficult for some, doing this might save you some money.
If you decide to pay on a monthly plan and the insurance company’s finance or interest fee is 4% of your total premium, you will be looking at an additional $60 (which is 4% of $1500.) Most people decide to go on a monthly pay plan because of the convenience of splitting up their payments throughout the year, even though they must pay an additional fee.
Some insurance companies might have, two pay, three pay plan options as well. These are other good payment plan options to explore, since some insurance companies might not require you to pay any extra fee, and you end up with "best of both worlds."
In a nutshell, whichever payment plan you choose to pay your premium to an insurance company might ultimately affect the total amount that you pay. It is important to always ask the company you are insuring with about the payment plan options available and decide on the best one that suits your individual or financial circumstance.
Written by Judith Pila
Judith is an Account Manager with an insurance brokerage in Edmonton. She is also involved with the Insurance Institute of Canada as a Career Connections Ambassador.
She holds a diploma in Insurance and a Bachelors Degree in Business Administration from Ahmadu Bello University, Zaria - Nigeria.
Edmonton Insurance Association Member 2019 - Present
IBAA Member 2015 - Present
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