Capitalism, Good Business or Greed?

Here is another case where I have to question is this pure capitalism, good business practices or greed praying on those who are struggling?

Progressive Insurance

My son in Boston has progressive auto insurance.  He got an email notification that his car insurance was coming due.  It was interesting the various payment options available for the six month policy. I love how they thank him for being a loyal customer then reach deeper into his pocket to extract crazy fees.

Options:

Option 1 Pay in Full – For $696.00 – this is the best “deal” for everyone. It gets my son the best price for coverage and Progressive the money up front. This does mean he is “prepaying” for his insurance. If he wants to shift it is harder to do and takes about 30 days to get a refund.

Option 2 – Automatic Deductions:  $864.00 this is a 19% premium over the base price.  At this rate, you are paying about the same as most credit card interest for people without great credit so not a bad option if you can’t pay the full amount up front. It is easy, you don’t do anything except make sure money is in your checking account. Progressive does have to wait for their money since most of these are paid even if you don’t have the money and if you don’t you get hit with overdraft. It is automatic for Progressive and the $1.00 cost for the digital transaction is still profitable. I don’t understand the reason for a 19% premium other than they can.

Option 3 – Monthly Installments:  $1,009.00 – this is a 41% premium. This should be against the law. I would call this a “broke and/or dumb person penalty” since this person is broke and can’t pay and needs to call the day of the payment and pay them OR does not have a credit card where teh interest would be lower to just pay it and then pay the credit card each month.

Both of the periodic payment options represents the risk of the customer not paying and the loss of a customer but more importantly the time value of that prepaid interest revenue.
The capitalist in me finds nothing wrong with this since you are paying for a service where you have a choice in who you do business with.   But then again, this is prepayment of the insurance which you have not consumed. We don’t really do this with anything else?  These preapyments only seem to happen on insurance other than expensive medical insurance.

The emotional human side of me thinks this is wrong to prey on people that can’t pay for the full six months. You were laid off, had a emergency payment for a doctor or a large home repair and have to pay in installments – is a 41% for “installment fees” appropriate?  If they don’t pay in that month then they get cancelled so it is not like they could actually rip off the insurance company.

Fortunately, our son is doing well and learned when he was in high school that he needed to budget and save money ahead of these large expenses so that he can pay them in full which in this case he did.

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