Billing and Payment Plans
How do you pay for your insurance?
For all of the criticism insurance companies receive, you never seem to hear that they are bad at collecting money. Unsurprisingly, insurance companies take their accounts receivable (and the money you owe them) very seriously, and have devised a number of schemes and plans to massage your insurance payments, to make paying easier and default less likely.
However, despite their varied plans and procedures, you really have a choice between two forms of payment, with a variety of options for how they are carried out:
- You can pay all at once up front
- Or, you can pay in installments
Up Front Payment
The first way insurance was ever billed, up front payments have become increasingly less popular in today’s age of credit and loans. A primary reason for it’s decline in popularity is the size of insurance premiums, which can be hard for some people to come up with all at once, especially if you home and auto policies renew at the same time (which can be a way to make your insurance easier).
However, in my experience I find many people struggle less with the one pay system, as it provides less opportunity for things to go wrong. Once you pay, its paid and you can forget about it for the rest of the year, while with monthly payments you constantly need to be aware of the balance in your bank account. Ignorance truly is bliss.
The one pay system is also cheaper. Nearly all (there are a few exceptions to this rule) insurance companies charge a 3% service fee for you to pay in monthly installments, to compensate for the extra work they need to do to handle the monthly billing. Given that the overnight interest rate is hovering around 1%, you could conceivably borrow money to pay your insurance all at once, then pay that borrowed money off over the course of the year with interest, and be better off at the end of the year than if you were paying the 3% fee.
Monthly payments can also result in insufficient funds (NSF) fees if your bank account does not have enough money to support the automatic withdrawals. These penalties result in a flat fee for each missed payment (typically between $20-40). The insurance companies also often schedule a re-withdrawal roughly two weeks from the NSF, which can also be returned NSF, with an additional flat fee. This can compound pretty quickly, especially because if your bank account has no money in it, your are probably in a position where you truly can’t afford the fees.
However, monthly payments simply fit your budget better. Spreading things out over a period of time makes coming up with the incremental payments easier, so you can use the money you have on hand currently to purchase more now. Almost all of my clients use monthly payments, because it smooths out your expenses and makes cash outflows more predictable.
There are a variety of monthly payment options, which include:
- Automatic Bank Withdrawals
- Credit Card Charges
- 3 Pay systems
Each has it’s own benefits and drawbacks, and not all are offered by every company. Automatic Bank Withdrawals are the most popular, but can be a pain to set up (requiring a signed form, a void cheque and a bunch of information), while Credit Card charging is increasing in popularity (provide a number, sign and you are good to go). 3 Pay systems can be a nice compromise between a one pay and monthly payment systems, as you break your full bill into three monthly payments which you submit consecutively. 3 pays also don’t expose you to potential NSF fees, which can be nice.
There is a wealth of options available to help you pay for the insurance, but it is up to you to decide what is ultimately best. Having a broker to advise you on the NSF fees, service charges and popular trends can be a great tool to help you pick the payment that works for you.
Want a broker representing you? Give us a call at 1-800-961-0941, or get a quick quote online, and see what we can do to help! After all, when you are with McDougall Insurance, you really are family.