Saturday, 12 November 2011

Monthly insurance payments

Another rant - why is paying insurance monthly "credit" (even if "0% APR")?

Surely insurance covers specified risks for specific time periods, so if you pay a year's insurance up front you are giving them credit - you paid for something and they have yet to actually provide it.

So why is paying monthly, i.e. 1/12th or a year's premium at the start of each month, treated as credit? Surely you are still paying for each month's insurance in advance of getting the insurance for that month. i.e giving them time to provide the service not them giving you time to pay for something.

Very odd.


  1. Consider it a discount for paying yearly, like a certain ISP I know

  2. It's credit because that's what the insurers want - they insure you for a year's worth of risk up-front, then take the money over 12 months.

    They could do monthly insurance, rather than yearly, but then they would be at risk of you cancelling after 3 months, having made a claim.

    Remember that they have technically provided the service as soon as you pay for the insurance - the service is the financial indemnification against the risk, not the actual payouts (if any); it's set up this way so that they've provided something even if you never pay them.

  3. Indeed, a discount paying yearly in front is fine, but it does mot make paying monthly "credit" as this is very clearly an "ongoing service".

  4. Yes, farnz, but they don't give you a year's worth of insurance "up front". It happens as time passes, so paying for what you get as you get it is not really credit. That is my point.

    I quite understand that getting paid monthly is worse for them, and so they may want to charge more.

  5. Actually, insurance is even more so an "ongoing service" than almost anything. Insurance is a service that could even change in retrospect if they wanted (your payment bounced so you cannot claim), the service is entirely in whether they accept a claim relating to a date or not. You could not get more of a real-time on-going service than insurance.

  6. Are you sure they don't give a years worth of insurance?

    I know someone who pays their car insurance monthly but I'm pretty sure the insurance certificate is for a year.

  7. It's just a scam to extract more money from people.

  8. If you stop paying I bet that means they can refuse to pay a claim, but even if not, the principle that you have not actually received all of the insurance when you pay still means you are paying before you get it so it is not really credit, not any more than you signing paper up front saying yu will pay for a whole year is paying it all up front.

  9. If you stop paying your monthly car insurance then they cancel your policy, regardless of the dates on the certificate.

    It's credit for historical reasons - you used to only be able to pay for a year up front so spreading payments was deemed to be "lending" you the premium for you to repay over the year. I suspect that many insurers, especially smaller ones also used (still do?) to hand the actual management of repayments to a credit company (even if just a different department) so that they did get the year's payment up front - at least as far as the accounts dept was concerned.

  10. On a similar subject, I wish you could get car insurance like 30-day mobile contracts. My insurer (a certain dog) charges a 10% premium for paying monthly instead of yearly.

  11. I would have thought they would prefer monthly contracts to be honest. I always found yearly contracts a pain to supply as people think of changes when they come up for renewal. With monthly direct debit people don't think of changes and just keep paying!

  12. I had a friend who paid for insurance a year up front and 6 months in had a total loss ie big smash where the car was written off

    no car ... no insurance ... but also no refund on the remaining 6 months (got paid for the loss though of course)

    I was insured and paid monthly also had someone smash into me and the car was written off

    no car ... no ins ... no more monthly payments
    (got reimbursed for the loss of course)

    I agree revk paying monthly is paying for an ongoing service which terminates when theres no car to insure

    always pay monthly :)

    anyhoo thats my experience

  13. This is one area where the US have it right.

    If you make a total loss claim for a car not only do you get it's value but you get the rest of the year's worth of premium back.

    US insurers also allow you to pause policies with no penalty either.

  14. Administratively, it's a lot easier and cheaper for them to have 12 month policies.

    Your broker may well bill you monthly for a policy the underwriter is providing as yearly.

    In which case, yes, it's credit.

    It's not all that wierd, really.

    Also, consider a TV license paid monthly, it's still for a 1 year license, even though you could view it as an ongoing 'service'.

    Car Tax, another one.