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insurance

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July 2, 2025 Score: 1 Rep: 10,117 Quality: High Completeness: 80%

Based on the standard loan equation the OP's monthly rate calculation looks ok, although the OP only has 6 payments (for a 6 month policy?).

s = principal
r = periodic rate
n = number of payments
d = payment amount

loan equation

To obtain monthly rate solve for r

    s = 1714 - 332.73
    d = 340.09
    n = 5
    s == (d - d (r + 1)^-n)/r
  โˆด r = 0.073553079

Checking in Excel

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To annualise, note difference between effective rate and nominal rate โ€” ref. Wikipedia: rate calculation

effective annual rate = (1 + r)^12 - 1 = 134.359 %
nominal annual rate compounded monthly = 12  r = 88.2637 %

On the other hand, if the 6 payments are every 2 months for an annual policy, the periodic rate calculation still stands: r = 0.073553079, but the annualised effective and nominal rates would change as follows

effective annual rate = (1 + r)^6 - 1 = 53.088 %
nominal annual rate compounded every 2 months = 6  r = 44.1318 %
June 30, 2025 Score: 2 Rep: 149,071 Quality: Low Completeness: 20%

Your math is correct if you are thinking of the payments as paying off a $1,714 loan, but another way to think of it is that they are giving you a $300 (~15%) discount for paying upfront. Yes if you instead look at it as paying off a loan, the equivalent rate seems ridiculous, but that's not what they're doing. They're just reducing the risk of you missing payments, etc., and that's worth giving you a significant difference for paying upfront.

If I were you and had the cash to do it, getting a discount for paying upfront seems like a very good deal for you.

July 2, 2025 Score: 0 Rep: 1 Quality: Low Completeness: 30%

You're on the right track conceptually โ€” you're treating the monthly payment option as a loan and solving for the interest rate that equates the present value of the monthly payments plus the down payment to the full payment amount. This is essentially calculating the internal rate of return (IRR).

Let's break it down:

Given: Full upfront payment: $1,714

Installment plan: $332.73 down + 5 monthly payments of $340.09

Goal: Solve for r, the monthly interest rate that satisfies:

332.73 + โˆ‘ ๐‘›

1 5 340.09 ( 1 + ๐‘Ÿ ) ๐‘›

1 , 714 332.73+ n=1 โˆ‘ 5 โ€‹

(1+r) n

340.09 โ€‹ =1,714 You've done this and found:

Monthly rate โ‰ˆ 7.39%

Annualized (compound) โ‰ˆ (1.0739)ยนยฒ - 1 โ‰ˆ 135.17%

Is that correct? Yes โ€” that result is very reasonable and in fact quite accurate. The effective interest rate the insurance company is charging on the installment plan is extremely high, and your math correctly reflects that.

Tip: Insurance companies often bake high implicit interest into monthly payment plans, especially since no traditional credit check is required.

Quick Check Using Excel Formula: To verify, in Excel or Google Sheets you could use:

excel Copy Edit =IRR({-332.73, -340.09, -340.09, -340.09, -340.09, -340.09}) This gives the monthly rate (same result as your calculation), and you can annualize it using:

excel Copy Edit =(1 + monthly_rate)^12 - 1 Conclusion: โœ… Your approach and result are correct. โš ๏ธ It's a very expensive loan โ€” if possible, paying in full is the financially smarter option.