Insurance Premium Installment Fees

Thursday, January 17, 2008


We often hear the phrase, “The poor pay more,” and here’s a couple concrete examples of how people who can’t afford to pay an annual or semi-annual insurance premium get socked with service fees.

Insurance premiums are usually charged annually or semi-annually, and the companies offer extended payment plans for those who can’t pony up a lump sum. It’s not fair that low and moderate income people who live paycheck-to-paycheck should be asked to pay more for their insurance.

The catch: most insurance companies charge service fees for installment payments. Here are two examples from bills received by staff members:

Progressive auto insurance: The 6-month policy premium is $344. If you can pay in full, the total is $304—a $40 discount. If you want to pay in five installments, the total premium is $369, including a $5 fee on each payment of $73.80. This is a 21% surcharge for the privilege of paying in installments.

Travelers home insurance: The annual policy premium is $1,368 if paid in full. The policy holder has the option to pay in up to 12 monthly installments, each carrying a service fee of $5, or $60 for the year. That’s 4% extra to pay by the month. (People who send insurance payments (and property taxes) along with their monthly mortgage payment avoid this fee). The mortgage company keeps the payments in “escrow” and then pays the annual or semi-annual premiums. However, people with escrow accounts are often asked to pay more than they need to so that there will be an extra cushion in the escrow account, which can pinch homeowner’s budgets.

Avoiding or limiting surcharges

  • Consider putting enough money aside during the year so that you are able to pay the entire sum when it comes due.
  • If possible make fewer installment payments. For instance, making four payments per year (quarterly) to the homeowner’s insurance would cost only $20 extra, not $60.
  • Some companies that offer to take the installments out of your bank account (via electronic funds transfer) may reduce the surcharge on each payment. However some companies offer this discount only temporarily and it may disappear upon renewal. If you opt for this payment method, make sure you know the date the payment will be taken, so that you have enough money in your bank account to cover it. If the insurance company tries to take the payment when you don’t have the funds in your account, you could get hit with bounced check fees from your bank and your policy may expire or be cancelled.
  • Each year, before renewing your insurance, call other companies to get comparison quotes. You might find a lower premium and save some money! When you call, ask if the company charges an installment service fee. You might find a company that does not.
  • Sometimes insurance companies don’t have their own installment plan, and the insurance agent or broker selling the policy will offer to arrange for a “premium financing agreement” through a lending institution or bank. Never let a broker or agent sign you up for a loan that you don’t need. Make sure you understand all provisions, including the schedule of payments, finance charges, annual percentage rate (APR), fees and what could happen if you miss a payment.

Your state insurance department may have fact sheets and other educational materials about the rules governing insurance in your state. To find the web site of your state insurance department, visit the National Association of Insurance Commissioners.





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