CHOICE membership

Pay by the month charges

Did you know that if you pay your insurance by the month with AAMI that they charge you $29.33 a month for that luxury! An extra $352 a year for spreading your payments out each month! That is a rip off,

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Hi @Bill17, welcome to the community and for your first contribution.

Many businesses (and government agencies such as for registration renewals) do this. It is common practice to ‘encourage’ their customers to stay with them longer. Paying $29.33 per month on addition to the premium is a very good incentive not to take up this option if one can afford to pay an annual premium outright.

Thank you for also raising as some consumers/members may not be aware of penalties which may exist when there is monthly payment convenience. It is worth checking and comparing before committing to a payment to ensure it is in one’s best interests.

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Why is it a ripoff? In my experience it costs less to buy subscriptions yearly or even longer than monthly or quarterly. Be it insurance or most other things I use.

Why not have a dig at Choice? If you take up a quarterly subscription you will pay 10% more over a year than if you took the yearly subscription.

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I used to pay the car insurance etc monthly with RACQ. The difference compared with a lump sum annually was minimal.

If there is a rip off it depends on the relative value of the premium AAMI are applying for administering a monthly payment, and loss of earnings compared with payment in full in advance?

We don’t know the base value of the annual premium - EG Current model Range Rover U25 driver vs a 2010 model Toyota Camry and 50 year old gold member with maxed out no claim bonus. It may be a fair premium, it may not?

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What is your annual premium?

Edging OT but relevant, one theory about the higher monthly payments for insurance (and some other products) that I do not subscribe to, is that those who pay by the month are in lower socioeconomic groups and are for a somehow related reason more risky than someone on ‘easy street’, so there is effectively a ‘risk surcharge’ atop any justifiable administrative/financial cost.

It is one of the many ways that those in the struggler/battler ranks are disadvantaged and those who are ‘better off’ are made ‘more better off’ as ‘cheaper paid annually’ is pervasive.

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There is some merit in that theory @PhilT.
If you are struggling month to month to pay the bills, a yearly invoice for insurance, or car rego, or council rates is a large hit.
A quarterly or monthly option is at face value more affordable when that invoice arrives, but it must have risks for the business of payment default if the customer cannot afford a full year, and it must have admin overheads.

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The policy would lapse by definition so that should not be a risk excepting in P/L forecasting if enough defaulted. The risk to which I refer is supposedly risky day to day behaviour attributed to the group.

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Suncorp offers pay by the month vehicle and home insurance at a 15% surcharge on the annual premium.

Comminsure offers both with no surcharge.

Unless @Bill17 has a very expensive set of wheels, it appears that the surcharge may be grossly excessive.

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I just got an online quote for our vehicle from AAMI based on a maximum value of $23,270.

Annual premium was $518.53. Monthly premium was $52.68. So an extra $113.63 per annum or $9.47 per month. An extra 21.9%.

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A policy that has lapsed is a customer lost. A company can treat it as an accounts receivable issue and follow up. Doing that 12 times a year possibly must cost more time and money than once a year.

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If they had to do it every momth, they would be better off without that customer.

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No disagreement, but in context how many policies would they need to do it routinely, especially 12 times per year. Maybe they do price it as if, yet?

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Hi there, it was a quote for House and Contents insurance, and it came out at a 21% premium hike to pay by the month.
I see this as rather opportunistic as those that pay by the month generally do it for a financial reason.
With Straight Through Processing of payments, and technology automation as it stands in the payment industry today, this 21% premium is certainly not reflective of cost to service.

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Whilst there may be slightly higher administration costs with instalment payments, the effective interest rate charged can make credit card rates look a bargain.

I recently did some analysis based on Choice subscription costs. The current annual charge is $83.95, the cost for a quarter is $26.95 ($107.80 annualised). At face value you can see that paying quarterly for a year will cost an extra 28.4%. However the implied interest rate is almost 79% p.a.

Similar to unit pricing, consumers would benefit greatly if providers offering instalment payment options were required to include an implied interest rate on payment documents.

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@Bill17, only a datapoint but you might be interested in the video linked to the article referenced in this topic