An electronic funds transfer, also known as EFT, is the transfer of funds from your credit card, checking, or savings account to your monthly bill. Insurance companies love electronic funds transfer because they know exactly when their payment will be received. EFT payments are recommended; however, caution should be used when it comes to automatic payments.
Set It and Forget It: The great thing about electronic funds transfer is you can set it up one time and all future payments are set. Payments will be taken out of your account on the same day of every month. No more writing out a check and paying for postage. Using your routing and account number from your checking or savings account is preferred over a credit card, because credit cards need their expiration dates updated periodically. Pretty much all insurance companies offer EFT payments, and it is the favored method of payment besides paid in full. Ask your agent what forms of EFT are allowed with your carrier. Some companies limit your options to just checking accounts.
Save on Payment Fees: Insurance companies often charge payment fees when paying monthly payments through the mail. Payment fees can range in cost from $3 up to $10 depending on your insurance carrier. Typically, the fee will be waived if your account is set up for electronic funds transfer. Plus, you will never have to worry about a late payment fee, if your payments are set up on automatic withdraw.
EFT Discounts: On top of saving on payment fees, some companies even give an additional five percent discount for having your payment automatically withdrawn from a checking or savings account. It is a great incentive to sign up. It is usually not as good as a paid in full discount, but every bit helps with the high cost of insurance. Ask your insurance provider if any discounts are offered for setting your payments up for EFT.Use Caution!
Switching Banks: Don’t get tripped up by switching banks and not notifying your insurance company. If your bank account has been closed, the insurance company cannot withdraw the payment. This can cause big problems. Your payment plan can get messed up or even worse your policy could get cancelled if you do not catch the mix up in time.
Switching Insurance Companies: A lot of things happen all at once when buying insurance. Cancelling your prior insurance does not necessarily give the insurance company time to stop your withdraw. You need to specifically request removal from the electronic funds transfer as soon as you know you are switching. A lot of times, it takes a couple of days for the removal to be processed, so you do not want to wait until the last minute. If you forget to be request removal, have your bank account padded for an extra withdraw and you will be refunded the premium once your cancellation is processed.
Money not in Bank Account: One of the downfalls of the electronic funds transfer is it’s easy to forget. If the insurance company tries to pull money out of your account and not enough money is available, it is equivalent to writing a bad check. A bounced check is bad for everyone involved, especially you. The bank will charge you a fee and the insurance company charges an additional fee. Often, if you get multiple bounced payments, the insurance company will not reinstate your policy. Keep a very close eye on your bank account at all times, and always give yourself a cushion of extra cash to reduce the likelihood of a bounced payment.
If you have been doing electronic fund transfers on any of your other bills, definitely sign up with your insurance company. The incentives are good and the convenience is unbeatable. It does take some getting used to, but once you have adjusted to your new payment method you will wish you had made the change a long time ago. Electronic funds transfer is easy to set up, just call your agent or signup on your insurance carrier's website.