Split Premiums Costly

Physician's Money Digest, November15 2004, Volume 11, Issue 21

If paying the annual premium onyour life insurance policy puts a bighole in your budget, the insurancecompany will probably be more thanhappy to let you pay it off in semiannual,quarterly, or even monthly installments.That's because the insurancecompany is pocketing some seriousmoney for letting you pay as you go,without any significant increase in itscosts. You can easily figure out howmuch installment payments cost you indollar terms; it's calculating the increasedcost in percentage terms that can giveyou sticker shock. Paying a $600 annualpremium in two payments of $317 willcost you just $34, but equating theadded cost to annual percentage ratesreveals that the semiannual paymentsare the same as being charged an interestrate of 25.5%.