August 12th, 2013
Paying for Insurance with a Credit Card
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**Today’s guest post is contributed by Ellen.**
Many insurers are allowing customers to pay insurance premiums by credit card. This is not a universal practice and policies vary by insurer, but it’s gaining traction in this age of über-convenience.
Should you hop on board the plastic train? Perhaps, but perhaps not. Read on to learn more, and tell us what you think below.
Reasons to pay with plastic:
1. Earn rewards points
Are you one of those people who pays your full credit card balance off each month, and then racks up reward points wherever possible? If so, placing your insurance premiums on a credit card might just be the way to go.
It’s a regular (often hefty) purchase that will help you get to those rewards faster. After all, there’s nothing like cash-back or a free flight to ease the pinch of insurance premiums.
2. Ensure your payment will be on time
Failure to pay insurance premiums on time can result in a coverage lapse. By signing up for automatic withdrawal through a credit card, you can be sure those payments are always made by the due date.
(Just make sure to update the billing information ASAP if you close a card or change any information.)
3. Some insurers give discounts for automatic payments
The insurance industry is all about risk. If they know you’ll faithfully make your payments, you’re generally considered to be a lower risk. For that reason, some insurers will offer a discount for automatic payment plans. Check with your insurer to see if this option is available for you.
4. One less thing to think about
You have enough to remember without trying to determine if your life insurance is up to date. Credit card payment plans offer a “set it and forget it” option that appeals to many consumers.
Still, it’s also important to remember that insurers change their minds. Keep tabs on your insurer’s credit card policy so you don’t get caught by a policy or fee change.
Reasons to hide the plastic:
1. Some insurers charge a convenience fee for credit card payments
Credit card issuers charge a fee to insurance providers and other merchants, who in turn pass those charges on to you. Before you decide to enroll in a credit card-based payment plan with your insurer, read the fine print to determine if you’ll be paying extra for the convenience.
2. You probably don’t want to pay interest on your insurance premium
Insurance premiums are typically expensive enough, without the thought of paying 22% interest on them. If you can’t pay off your balance each month, those insurance premiums can end up costing you dearly.
Crunch the numbers, conduct research on insurance, and do what works best for your situation.
The ugly credit score cycle
Here’s some irony for you: failure to pay off your credit card every month, or paying it late, can negatively impact your credit score. Poor credit scores can lead insurers to give you higher rates on premiums.
That means if you put your insurance premiums on a credit card and you can’t pay the balance every month, you could easily end up paying more for your insurance premiums.
And that, my friends, is the ugly credit score cycle. You don’t want to get involved.
Tell me: Would you consider putting your insurance premiums on a credit card? Why or why not?
Ellen Hunter Gans, M.A., MSc. is a writer, editor and communications strategist who contributes to The Simple Dollar’s credit card portal. The Minnesota native has been writing about finance (among other things) for over four years. Find her on LinkedIn.
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