Ami
Expert
Do you even math?
$665 annually or 758.16 on the monthly option. That's about 13%. I have no idea how you are getting these numbers.
Edit: I still disagree with subtracting the first premium payment. It's not financing, it's just extra admin fees being tacked on. Those fees start from the first month the premium mode is selected.
Thank you, thank you, and thank you again "AboutThatLife" for posting your remark. I couldn't have asked for a better example to illustrate deficiency in basic insurance and financial understanding and knowledge among some (hopefully a very small percentage) of people who sell life insurance. I've printed it off for my notes, and I would assume that you would not object to my quoting your post in a chapter about life insurance of a book that I am presently working on. Of course, and as should be, there will be proper reference credit to you, the author of that post.
Speaking of books on the subject of life insurance, I highly recommend the excellent book and life insurance reference resource, "The Insurance Forum: A memoir", ISBN 0-941173-18-6 by Joseph M. Belth, professor emeritus of insurance in the Kelley School of Business at Indiana University.
Chapter 8 of Professor Belth's book addresses the issue of disclosure of the financing charge rates for fractional ("modal") premium payments. To Quote from page 100, Professor Belth writes:
Primerica Life Insurance Company, the successor to ALW, was the defendant in one of the New Mexico cases. It still charged an APR of 29.7 percent on monthly premium, and preauthorized checks. I estimated that Primerica's profit from fractional premium charges was $110 million per year, or more than 20 percent of the company's net operating gain.
In July 2000 the attorneys in the Primerica lawsuit met in settlement negotiations. One of the plaintiffs' attorneys later submitted and affidavit describing what happened. The affidavit included the sentence:
Primerica drew a line in the sand, and after extensive discussions told us that the matter had been discussed at the highest level and there was simply no way an interest disclosure would be made
As to the calcs, if you are unfamiliar with financial matters and/or the basic math involved, there are plenty of amortization rate and payment calculators online. In reference to your remark I still disagree with subtracting the first premium payment, please remind yourself that premiums for insurance are payable in advance, not in arrears (meaning at the beginning of each period, not at the end of each period). Therefore, if the annual premium is $665.00 and the "monthly" fractional is $63.18, $665 is payable at the beginning of the policy year - which is also the beginning of the first month in the policy year - if paid yearly or $63.18 is payable at the beginning of the first month of the policy year if the payments are monthly. Thus the amount "financed" in the example is not $665.00 but $665.00 minus $93.18, as the first month's $63.18 is akin to a "down-payment"
Again, "AboutThatLife", many thanks for your post. Much appreciated. I could not have asked for a better example to illustrate a point and matter of consumer interest.
----------
Attribute the charge as a "convenience fee", "processing fee", "lapse assumption" or whatever; however, and regardless how "low" it may appear as a dollar cost per month, the $$$ still travel from the consumer's wallet to the company's coffers. All I am trying to get at is that the effective rate (or at the very least, the APR) should be disclosed to consumers. Life insurance is a financial instrument. Would the same company who charges an APR of 29.747 (effective annual rate of 34.157) provide the consumer with the option to buy a CD or MF with a guaranteed return equal to those figures? Rhetorical question indeed but a matter to be kept in mind.
---
BTW, As to the cost involved with "touching payments 11 times more per year" these are minimal, particularly when done electronically and automatically. I highly doubt that 11 or 12 automated electronic debits cost the company more than the wholesale price of the paper cup of a Starbucks latte - if even that.
----------
"Out of sight, out of mind"; however, if the APR - or better yet, the effective annualized rate - were to be disclosed, consumers would have the info needed to make a better informed decision.
Of course, the rates charged vary from as high as 30%+ to 0%. That also, of course, means that the price positioning of a product annually is not necessarily the same or similar to the price positioning fractionally ("monthly", "quarterly", "semi-annually")
