Policy monthly withdrawals are one of the more difficult things to explain in the insurance industry. Insurance polices used to require a “first and last” payment (at application signing) to get the policy issued initially, much like you would have if you were renting a house or apartment. Some insurance companies still operate like this but it isn’t common practice.
Now you’ll typically see a double first payment come out of your bank account on the first scheduled withdrawal date, to get the ball rolling, and then back to normal. Every insurance company out there likes to operate their business accounting one month ahead of schedule, that way if payment is not received on time they have some breathing room. This means that when your policy comes up for renewal, the first withdrawal will have been taken out the month prior.
Cheryl has just started an insurance policy with Supreme Insurance Co.
The policy is a 1 year term, effective January 1, 2014 and expires January 1, 2015
With annual premium of $2,000
Her withdrawal dates are set to come out on the 10th of each month.
Below is a table showing the payment schedule for Cheryl’s new policy, and the payment schedule for when her policy renews. Notice that there isn’t a December payment on the first policy term, by November 10th that policy is actually paid for in full.
The December renewal actually comes out on the next policy term – the renewal.
|New Business Payment Schedule||Renewal Payment Schedule|
|December 10, 2014||$171.67|
|January 10, 2014||$343.33||January 10, 2015||$171.67|
|February 10, 2014||$171.67||February 10, 2015||$171.67|
|March 10, 2014||$171.67||March 10, 2015||$171.67|
|April 10, 2014||$171.67||April 10, 2015||$171.67|
|May 10, 2014||$171.67||May 10, 2015||$171.67|
|June 10, 2014||$171.67||June 10, 2015||$171.67|
|July 10, 2014||$171.67||July 10, 2015||$171.67|
|August 10, 2014||$171.67||August 10, 2015||$171.67|
|September 10, 2014||$171.67||September 10, 2015||$171.67|
|October 10, 2014||$171.67||October 10, 2015||$171.67|
|November 10, 2014||$171.67||November 10, 2015||$171.67|
|December 10, 2014||No Withdrawal||December 10, 2015||No withdrawal|
Now if you wanted to cancel your insurance policies there are two ways of doing it. At renewal time or shortly before (Flat-rate). When you cancel at this time there are no penalties given, it’s just a clean break and you’re able to move on to another insurer.
The other way of cancelling a policy is mid-term (short-rate). There are penalties involved in this cancellation process, starting with rather large penalties at the start of your policy, and then gradually getting smaller the longer your policy is in force.
Check out our calculator is you want to see your cancellation penalty.