Pay annually to minimize insurance costs
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Trent Hamm Guest blogger
Insurance companies know that different people are in different financial situations and have different financial desires.
Some people have a difficult time swinging a large annual amount, but can manage a monthly payment just fine. Other people, who have nice sums in the bank, can easily handle a larger payment (which is more convenient for the insurance company). Still others find themselves somewhere in between.
Because of that, insurance companies typically offer several different plans for paying one鈥檚 annual premium.
For example, my own insurance company offers a monthly payment plan, a quarterly payment plan, and an annual payment plan.
The annual payment plan is by far the best deal. Let me explain why.
Most of the time, you鈥檒l find that the insurance company will essentially tack on a small amount for each separate payment you make 鈥� say, $5. This is usually rolled into your premium payment.
So, let鈥檚 say you鈥檙e actually paying $240 a year for insurance premiums, along with an additional $5 per payment.
If you make monthly payments, you鈥檙e going to pay $20 per payment for your insurance, plus an extra $5 for each payment, for a monthly bill of $25. Over the course of a year, you鈥檒l pay $300.
If you make quarterly payments, you鈥檙e going to pay $60 every three months for your insurance, plus an extra $5 for each payment, for a quarterly bill of $65. Over the course of a year, you鈥檒l pay $260.
If you make annual payments, you鈥檙e going to pay $240 for the year, plus an extra $5 for that one payment. You鈥檒l pay $245 total over the course of that year.
Thus, in this example, you save $55 by making an annual payment over a monthly one.
Each insurance situation is different. You owe it to yourself to do the math and聽figure out which payment system results in the lowest annual payment.
If you鈥檙e having difficulty affording an annual payment due to the size of it, you should start examining how you manage your money. Your best bet would be to set up an automatic savings plan where a certain amount is transferred each month from your checking to your savings account, enough to cover all of your irregular annual bills (and, ideally, more than that to serve as an emergency fund).
You owe it to yourself to minimize your payments. The choice is up to you.
This post is part of a yearlong series called 鈥�365 Ways to Live Cheap (Revisited),鈥� in which I鈥檓 revisiting the entries from my book 鈥�365 Ways to Live Cheap,鈥� which is available聽at Amazon聽and at bookstores everywhere.聽
