COURTESY FEES = BAD MANNERS

COURTESY FEES = BAD MANNERS

Insurance companies are not in the business of making it easy for you to get money from them. Insurance is betting, pure and simple. I bet I’m going to die young, then all my friends get a great big party, and I only paid a pittance in premiums before I died. Hah! In the case of automobile insurance, it is THE LAW that you carry insurance, so a little less like betting here. Yesterday, I was asked to look over an insurance invoice, and my first question was why are you paying monthly? My client insures three cars in Oakland. The premiums run about $1,224 every six months. Insurance Company X extends to us, their customers, a kind and courteous offer to allow us to pay them only one-sixth of that amount every 30 days. For this fine gesture of goodwill, Insurance Company X will charge us a piddling, not worth mentioning “courtesy” fee. It will only be $3.50, just three dollars and fifty cents, pocket change, really.

Here are three reasons you should NEVER pay your insurance premiums monthly:

Reason #1: $3.50 translates to a drastically high interest rate to pay on borrowed money. It doesn’t seem that way, I know, but here is the math:

$3.50/$204 (monthly payment) = 1.716% a month. That doesn’t sound so bad, but let’s annualize it. 1.716% times 12 = 20.5% annual interest rate. To put it another way: $3.50 times 6 = $21.00. That’s $21 dollars in fees every six months. $21.00/$1,224 (twice yearly payment) = 1.716% times 12 = 20.5% interest rate
So you are paying 42 dollars a year for the privilege of giving Insurance Company X one-sixth of what you owe them on a monthly basis.

Reason #2:
If you overpay, they will refund your money. If you miss a single payment, it could cost thousands to re-instate with a new carrier.

Reason #3:
If you do not remit funds within the short window (10 days in some cases) you have given them the right to cancel your policy every 30 days. If it was me, I would rather they have this power only twice a year, not twelve times a year.

So think carefully before allowing Insurance Company X to extend you this wanton “courtesy”. It all adds up.