Since my company doesn't offer disability insurance, I buy my own. The other day I received my bill for this year and was reminded of a simple, but effective money saving tip when it comes to insurance coverage of all kinds:
Pay annually.
Why is this a money saving tip? Because most insurance coverages (disability, car, home, etc.) will give you the choice of how to pay your premiums -- annually, semi-annually (twice a year), quarterly, or monthly. If you pay annually, you simply pay the price of annual insurance coverage. But if you pay in any of the other time frames, you pay what my insurance company calls a "frequency charge." Here's how much extra I would have to pay if I picked any option other than annual:
- Semi-annual: $77.22
- Quarterly: $154.46
- Monthly: $154.46
Needless to say, I pay annually. It not only saves me money but also saves me time. This is a budgeted expense for me, so I plan for it, save for it, and pay it off in one, big, annual payment.
For more tips on saving money, see 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money. For more on insurance, see these posts:
Depends on the insurance company. Ours (USAA) used to charge $5 per month extra for paying for frequently, but recently changed so that the monthly payment is the annual payment divided by 12.
Posted by: Amanda | May 16, 2007 at 02:25 PM
Great Point!
If you calculate how much you "earn" by doing this, it is often around 10-15%. Now who doesn't want a gauranteed return of 15%?
I recently got quoted a price for life insurance. It is $180 a year for 10 years for $1M in coverage. The price is higher if you pay monthly or quarterly. Vs monthly, it was just over a 15% rate of return. I was also told that I could save 10% on the second year and 15% on the 3rd year if I paid them up front. I was getting excited. I actually asked for a quote for all 10 years, up front. After using my calculator, I learned it didn't get any better. Essentially they offer you the 3rd year rate for the rest of the years. So, I walked out of the office with a 10 year policy and 3 years pre-paid for under %300.
But why stop at insurance? I have saved a lot of money by paying my daughter's dance class fees, her preschool tuition, and an annual lawn care service fee on an annual rather than monthly basis.
Posted by: broknowrchlatr | May 16, 2007 at 03:37 PM
Some insurance, auto typically, frequently bill semi-annually, the quicker to raise rates or discontinue coverage if you have an accident, so sometimes you don't even get the choice.
Posted by: Lord | May 16, 2007 at 03:55 PM
Better off paying it annually, even if you don't have the cash right now. Charge it and transfer the balance to a low interest card or a card that has an intro rate of 0%. Then, pay it off. Usually the amount you pay in interest (if any) will be nowhere near how much they charge you to pay in "frequency charges".
I guess this is another one of those privileges of those of us who have stellar credit.
Posted by: Greling | May 16, 2007 at 04:13 PM
Our insurance didn't care so they said auto-deduct 12 payments and done. So I did, it's the only bill that does that. I used to pay annually with AAA and it save me a ton, but not anymore.
Posted by: Livingalmostlarge | May 16, 2007 at 10:35 PM