British Columbia Avarice Association

August 15, 2006 11:12 AM

My home insurance company (BCAA) has recently started charging 3% interest for monthly premiums debited from my bank account.

They never used to do this. The fine print says the interest is charged on the entire premium, so it works out to 5.5% when calculated on the declining balance throughout the policy year. It doesn't amount to much, but I can't stand this greedy nonsense. The premium is paid each month before I "use" the insurance (unlike a phone bill), so I am never indebted to them. How can they get away with this? Is there any legal precedent for disputing it? (I know I can just pay the whole premium up front.)

posted by weapons-grade pandemonium to Work & Money (13 answers total)

you should call and get a clarification as to why the charge was added and if they charge less if you mail payment or through online billpay. It's likely they are in the middle of dealing with their own charges for debit transactions and they are passing on the costs.

You might consider if there is no resolution possible at BCAA of shopping for a new home insurance policy, going through an agent, speaking specifically about making sure there a no debit transaction charge or interest.
posted by parmanparman at 11:16 AM on August 15, 2006

Actually, insurance premiums are one set amount for the full period of coverage, usually one year. It's in your policy. A monthly payment option is a courtesy to its customers--one which they seem reluctant to give.

I would mention your displeasure to BCAA, and suggest that if the previous arrangement is not restored, then you may be inclined to take your business elsewhere.

Or, if you have the money, pay up front.
posted by deadfather at 11:21 AM on August 15, 2006

Your home insurance has a year-long term, yes? So you are in fact indebted to them, as you are not pre-paying the entire premium at the start of the year. They are charging interest for allowing you use of your premium money throughout the year. unless I am misunderstanding something about the situation

On preview, ditto deadfather
posted by misterbrandt at 11:24 AM on August 15, 2006

BCAA has been doing thisfor a while, at least a year, possibly two. I also get my home insurance through BCAA and I switched to up-front payments because of these fees.

Side note: be really sure to renew immediately when you get the notice. BCAA sends one reminder and then lets your policy lapse. Don't ask how I know, but, um, there was one weekend last year where my house had no insurance.
posted by Yogurt at 11:35 AM on August 15, 2006

This is pretty standard. SGI does this, too. They're doing you the favour of allowing you to take a year to pay, rather than demanding it all upfront. If you paid upfront, they would be investing that money somewhere, earning interest. Which would either increase their profits or keep everyone's premiums lower. They're also taking the risk that they might not get their $ if your cheque bounces.

If it bothers you, start matching your monthly payments with a transfer into a savings account. After a year, you'll have enough cash to pay upfront (and even a tinytiny bit extra because of the growth on the money).
posted by raedyn at 12:35 PM on August 15, 2006

It doesn't bother me financially. It bothers me philosophically. If I pay monthly, I'm still paying them in advance of their service. If I were to pay up front, I'd be lending them a year of my money to invest and make interest. They should give me a discount for that. I'd only charge them 3% on the total, which would work out to 5.5% on the declining balance. Who is doing whom a favour here?
posted by weapons-grade pandemonium at 2:09 PM on August 15, 2006

And as for keeping everyone's premiums lower, I'm sure we can trust the insurance companies to pass on some of that 673 percent per annum increase in profit.
posted by weapons-grade pandemonium at 2:21 PM on August 15, 2006

Well here in commie Saskatchewan, the compulsory auto insurance is government run monopoly that operates on a break-even basis. After five consecutive years without rate increases, the Auto Fund sent a rebate cheque to everyone that had paid premiums the year before. Here, more interest earned by the insurer actually means lower rates for everyone. There is no profit on the mandatory insurance.
posted by raedyn at 2:32 PM on August 15, 2006

If I pay monthly, I'm still paying them in advance of their service. If I were to pay up front, I'd be lending them a year of my money to invest and make interest. They should give me a discount for that.

Isn't that exactly what they're doing? They're charging less for people who pay the full amount at the beginning of the year, and charging more for people who pay in installments. It makes no difference whether it's described as an "extra charge" for people who pay in installments, or a "discount" for paying all at once.

You're signing an insurance policy for a year of coverage, and they expect that you'll pay for it at the beginning of the year. Charging extra for paying monthly is a fairly standard policy amongst insurers.
posted by gwenzel at 2:38 PM on August 15, 2006

I realize now that I got mixed up with another thread and mistakenly got the idea you were talking about auto insurance. Sorry 'bout that.

You also pay your cable bill in advance of the service. And if your utilities are on equalized payments, you pay in advance of the service. You pay rent in advance of the service. You pay for concert tickets in advance of the service. At McDonalds, you pay before you get your food. It's not a particularly unique situation.

If I were to pay up front, I'd be lending them a year of my money to invest and make interest. They should give me a discount for that. - weapons-grade pandemonium

What would the difference be, really? Either way, you pay more for spreading it out over the entire year than you would if you paid upfront.
posted by raedyn at 2:40 PM on August 15, 2006

I'm not against paying in advance of the service. I do that when I pay monthly. I guess I'm against paying a year in advance for services that don't appear to require that, and then getting penalized (because this is a new charge) for not doing that.
posted by weapons-grade pandemonium at 2:58 PM on August 15, 2006

And yes, I know I'm pissing into the wind.
posted by weapons-grade pandemonium at 3:00 PM on August 15, 2006

Pissing into the wind is a strong description. Taking a little excessive issue with how they choose to sell their service may be more accurate. What's so special about monthly? You could also argue that you're using the service weekly or daily. They could argue that they're providing a service that supports a long-term large purchase so a longer term makes more sense.

Can you not vote with your dollar and change companies to someone whose coverage periods are bi-annual or quarterly?
posted by phearlez at 10:15 AM on August 16, 2006