Is It Really More Cost-Effective to Pay Insurance Premiums with Credit Card Rewards? Real Data: 1.2% Cashback vs. 7% Annualized Investment Return

Lazy to Be Rich (懶得變有錢) Introduction

To all you lazy people who can’t be lazy, and those who can’t be lazy but want to be… In this fast-paced era, we’re always looking for shortcuts to make life more convenient without adding to our burdens. Credit card rewards seem like a good option, but when it comes to paying annual insurance premiums, is it really a good way to save money? Today, let’s debunk this credit card myth together! Don’t let the bank secretly take your money to earn their transaction fees. Saving on your own really isn't that hard. The hard part is whether you have a plan.

Are You Influenced to Pay Insurance Premiums with Credit Cards?

We often hear people bragging about how much cashback they get from their credit cards, but when these rewards become tools for paying insurance premiums, do they really bring us the savings we expect? Or is it just a social illusion, a pretense of “looking like I’m good at managing finances”? If it’s to get insurance quickly, maybe you can consider credit card installments for the first payment, because protection really can’t wait; getting insurance as soon as possible means dispersing risk as soon as possible. But the hardest part is that from the first payment, you have to pay the installment and save up for next year’s premium. If you don’t save up for next year’s premium, you’re just waiting to do installments again next year, in an endless cycle. And… when you finally decide to adjust your finances, you’ll find it’s too late.

Because the installments are like water spilled, gone!

What Do You Think About Every Time You Pay?

When your phone or insurance company or agent reminds you that your insurance premium is due, do you immediately think about quickly finding which credit card to use to pay the premium for the highest cashback and installments? This habit may need to change. Let’s calculate what would happen if you saved this money in the stock market and made a one-time payment at the end of the year.

The Self-Satisfaction of Financial Management

Financial management is not just a numbers game; it’s about your emotions. When you discover that every penny saved or earned through wisdom, rationality, and planning gives you a sense of accomplishment. This feeling far exceeds what credit card rewards can bring you. And this is the financial sense of achievement that you need to invest in to experience.

How Are Premiums Usually Paid?

Through the table, you can find that annual payment is the “cheapest” payment method, without being charged any possible fees (according to the Regulations Governing Review of Life Insurance Products). The plain language meaning is like what you see in the table above, the percentage of fees charged more in a year (can’t be called interest, so I interpret it as a fee for actuarial risk). It’s like two people buying accident insurance, one paying monthly and one paying annually. They buy at the same time and die at the same time. The one who paid less is more profitable (huh?). But the insurance company loses more, so they have to charge a little more. That’s roughly the concept.

Credit Card Installments Sound Good?

From the table, you can directly see that if you have a credit card with 2% cashback, you save NT$1,000 on the premium in a year. Is that really a lot? Not at all, because people who can afford NT$50,000 in premiums (if it’s not a savings insurance) probably don’t care about the difference of NT$1,000. And in reality, it’s not necessarily NT$1,000, but NT$500. Because most insurance companies offer a 1% discount through automatic bank transfer.

In other words, your real purpose for using a credit card should be “installments” rather than “cashback.” If it’s really for cashback, I can only say you’re either Wang Yung-Ching or Wang Yung-Ching reincarnated. (Borrowing the name of someone many young people may not know)

Let me summon Yung-Ching, because the most classic money-saving quote I can find online is very fitting.

Let’s Talk About Money

I want to discuss why most people like to “spend first” but don’t like to “prepare first.” The concept of paying insurance premiums with a credit card is like paying the money first and then slowly “paying it back,” right? That’s right! Most people do like this consumption pattern. But do you know that this may cause you even greater losses? If you don’t calculate, you’ll blindly follow the myth of “credit card premium installments with cashback.”

If everyone does something right together, it’s an achievement, but if everyone eats a pile of shit together, then it’s probably hopeless! (Sorry for being blunt)

What If We Look at Insurance Premiums with the Concept of Preparation?

What does “prepare first” mean? It means you can save different amounts of money at different times according to your annual premium budget, and then pay the money. This is called “prepare first.” This kind of financial behavior of preparing first will bring you great achievement and confidence in consumption and financial decisions (you have to believe this to have it; if you don’t believe, you won’t have it, or you can just turn left). And if you prepare the money in different places, you’ll have different results, all of which will be higher than using credit card installments.

Numbers Don’t Lie

After calculation, your insurance premiums should be handled by “preparing first,” but unfortunately, if your current cash flow can’t turn around, you may lose many possible opportunities. (We’ll discuss the part about cash flow not being able to turn around in future chapters on income and expense management)

Insurance Premium Preparation Location One: Stock Market

If you put the money into the stock market, how much value will the NT$50,000 premium have? Here, I won’t compare specific ETFs! I even ridiculously used the “Taiwan Weighted Index” from 1987 to 2023 to discuss. At that time, TSMC wasn’t even listed yet, and Taiwan’s stock market was only a few thousand points. This data is enough for backtesting, right?

Historical Data of Taiwan Weighted Index

According to the above data, what would happen if you saved NT$50,000 in 12 months? Roughly, you would invest NT$4,166 into the stock market each month, and then use the average return of 14.27% to try calculating.

I can’t just talk about the good without talking about the bad, so I still used various possibilities for you to refer to when calculating. If the market is not as expected, we may really have losses, but don’t forget, I just used the “average” to calculate. If you’re not living paycheck to paycheck and also have an emergency fund prepared, looking at the probability and magnitude of the increase, there’s a good chance it will exceed this 14%.

Get Ready to Be Criticized by Major Financial Experts

Yes! When I talk about this, many financial planning experts will jump out and say, “Why put such short-term expenses like premiums in such a high-risk stock market? Can’t you just put it in a savings account?” You can put it in a savings account, but if you have confidence, certainty, and ability in the stock market, why can’t you put it in the stock market? Financial management doesn’t have absolute right or wrong. This is just a choice. Can’t we even talk about choices?

Okay! Putting it in a savings account is also fine. Let me calculate what’s different about putting it in a savings account! You’ll find that paying insurance premiums with a credit card is just letting the bank earn the insurance company’s transaction fees in the current interest rate hike cycle, and you only get installment consumption. It’s not better!

Insurance Premium Preparation Location Two: Bank Account

Is the Bank of Taiwan’s posted interest rate table too annoying to read? I’ve organized it for you. You don’t need to look at anything over a year, and you don’t need to look at anything over NT$5 million. Just look at fixed savings deposits and demand deposits (you probably won’t save a lump sum to deposit and wait to pay premiums). After calculating, do you understand the conclusion? The result of applying for a zero-sum deposit at the bank is still higher than credit card cashback! And it can also increase your financial confidence. Looking at the interest on fixed-term savings deposits, it’s not necessarily worse than credit card cashback, so do you think credit card cashback is real cashback? Wake up, what you're speculating on is premium installments.

Story: Ah Ming’s Lesson

Ah Ming is an office worker who often uses credit cards to pay bills. He always proudly tells his friends how high his credit card cashback is and how much he can pay in installments. But when he read the Lazy to Be Rich (懶得變有錢) blog and learned through the article that he could save more money in a year if he changed his payment method, he began to rethink his choices.

In the bustling city, Ah Ming is one of many office workers. After his monthly salary is deposited, it is quickly “evaporated” by various bills, among which the annual insurance premiums weigh him down the most. This pressure is like an invisible mountain, making it difficult for him to breathe. Especially if the premium is paid annually, it usually starts at tens of thousands of NT dollars. If you don’t prepare this money in advance, it’s easy to be short of funds like when paying taxes? (Of course, I don’t think most people are worried about premiums, but indeed most people pay premiums by swiping their credit cards when the time comes, without worrying about it.)

As time passed, Ah Ming found a seemingly glittering lifeline on the Internet—cashback for paying insurance premiums with a credit card. This tempting method brightened his eyes, so he began to switch all his insurance expenses to credit card payments, hoping to reduce his financial burden. But credit card installments are a deferred psychological burden. On the surface, there may not be much feeling about consumption or life, but installments are always a sense of “debt,” and not a healthy debt concept.

However, with each installment of premiums, installments of different policies, and installments of newly purchased policies, Ah Ming gradually realized that this was not a long-term solution. Hidden behind the cashback was the risk of higher interest and possible default if payments were not made on time. This realization was like a lightning bolt, splitting his myth about credit cards. Although credit cards are good income and expense tools in some parts, through rational analysis, he also began to seek more planned financial methods, rather than just searching for financial tools online. Because financial tools are just ways to solve problems at most. The most feared thing in financial management is not having problems, but thinking that there are no problems.

People are most often ashamed to seek financial help from others (or experts) because they mistakenly believe that finances are private.

At this time, the concepts mentioned in Lazy to Be Rich’s (懶得變有錢) Podcast program “【EP1】An iPhone Will Cost You 3 Hours of Your Lifetime! Your Money Will Come and Go, Sometimes Quickly, Sometimes Slowly!” appeared in his vision. Ah Ming began to seriously learn how to manage his finances, from budget control to investing in stocks. He no longer sought short-term satisfaction, but focused on long-term financial health. He began to set up a fixed savings account every month, specifically for paying insurance premiums, and used his expertise to invest in financial products with controllable risks.

Over time, Ah Ming found that he not only got rid of financial pressure, but also began to enjoy the process. His investment portfolio grew steadily, and insurance premiums were no longer a burden, but became part of his financial plan. His story proves that even the most ordinary office worker can achieve financial freedom through wise financial management.

Further Reading

Lazy to Be Rich (懶得變有錢) Conclusion

懶大

金融科技新創 CEO | 獨立財務顧問

So, lazy people, next time before you climax over that tiny credit card cashback, you might as well stop and do a real calculation. You may find that the simplest method is not necessarily the most effective. Remember, financial management is sometimes about being lazy in a smart way. Do you think it’s a good thing to lazily pay insurance premiums with a credit card? No! After calculation, you will find that your losses are even greater. Then there’s the matter of financial achievement. You can think back to whether you have had the experience of needing to report on stage or report to your supervisor, or the experience of taking an exam. If you prepare for a longer time and are more prepared, then your confidence will be higher at the moment. It’s actually the same in the world of financial management.

But I call it “planning, not financial management.”

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