My health insurance is “gifting” me 1% of the costs if I pay my insurance all at once instead of paying monthly.
I am tempted to show the finger and pay monthly since it won’t be a big issue with ebills and such.
How come they think it’s ok to offer just that?
Pay monthly, put money in the market, outperform 1%?
It used to be interesting for some people in a world of 0% savings accounts rates. We now can get better returns on our very safe short term money so it doesn’t make sense going for it anymore.
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I used to do that before becoming more savvy because it was a tax free return of 1%.
I have friends who still do that.
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I pay annually just to save the hassle of an additional 11 payments. I also pay in December, so I guess I save some wealth tax too.
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My previous insurance for the last 3 years and the new one both offer a 2% discount. 2% discount is actually 4% annualised as you would pay 6 month later in average. I always take the deal
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Because interest rates are very low.
From the viewpoint of the insurance company, the advantage of early payment discounts is they need to issue fewer bonds & shares. If the prompt payment discount is too high then it is cheaper to just issue bonds instead.
From your viewpoint, whether a 1% discount after taxes makes sense depends on the alternative use of your money. If my maths are right the effective return (IRR) is 2%, after taxes. So if you have part of your assets earning less than 2% after tax - for example in cash or savings accounts - then from an economic point of view you should consider using those assets to pay the policy upfront.
In my case I do not take such discounts because I have all my nw deployed in assets where I expect to earn >2% after taxes (other than a small amount of cash I need to cover monthly bills)
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Can you share your math with us? I don’t know what you are calculating. Tbh even the “after taxes” is a bit unclear. The amount (1%) is still too low the be taxed.
For simplicity suppose your premium is 1200 CHF per year.
Option 1: Take 1% discount and pay 1,188 CHF on 31 December 2023
Option 2: pay 100 CHF on 31 December. Put 1100 CHF into a savings account paying 2% p.a. then pay 100 CHF monthly:
a) In January your savings balance is 1100 CHF and you earn ~ 1.82 CHF interest (2% return p.a. to the power of 1/12) )
b) In February your balance was 1001.82 CHF and you earn ~1.65 CHF interest
…etc
By December you earn ~11 CHF interest in total. 1200-11 = 1189 CHF so break even with option 1
In Option 2, you have to pay taxes on interest income. If a savings account pays 2%, then someone with a 30% marginal income tax rate only earns 1.4% after taxes.
On the other hand, I did not take into account that health insurance premiums can be deductible for cantonal and communal taxes depending on the canton. If that applies to you then in option 1, you do not save 1%. If you have a marginal tax rate of 30% you might only save 0.7%. In this case tax impacts on the 2 options should more or less equal out
Another consideration is wealth tax: if you pay the annual premium by 31 December your wealth tax will be a bit lower
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I realized last week that I got a 4% discount in my health insurance premium when opting for the annual payment. I am with VISANA and It’s sort of confusing because in their website they clearly say that the discount is only 2%… I am not going to complain.
My girlfriend got the same 4% discount that I did. Someone had the same discount with VISANA?
For me it’s more compealing to pay the premium yearly and be capable of investing more at the end of the year.
Could be that is still an old rate on the website, and they haven’t updated the text yet.
Whatever the reason, I’d also take that 4% at the blink of an eye.
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Only 1% with KPT, but then again they are the cheapest for my parameters - so it likely evens out.