This is one tip that can save you from financial ruin. Seriously.

Most of the time, paying your Medigap premium electronically by electronic funds transfer (EFT), either directly out of your bank account or using a credit card, will be a minor convenience or cost savings at best. But, you can run into a situation where not having your premiums paid automatically can cause you to lose your insurance and possibly your nest egg.

Now I know what some of you may be thinking. I know a few different reasons at least why some of my clients don’t like to pay by EFT:

• You don’t like anyone automatically taking money out of your account every month
• You’re likely to forget about the withdrawal and not have enough money in there to cover it
• You think it’s impossible to stop once it’s started, even if you cancel your plan to go with a different company

But, let’s look at a few different reasons why you should always use EFT and avoid paying your bill direct…

You Usually Pay Higher Premiums Without EFT

I’d say about half of the Medigap companies out there will give you a monthly discount on your rate if you pay automatically by EFT. This is direct savings that keeps more money in your pocket each month.

It makes sense if you think about it. The insurance company saves the expense of mailing out a bill, receiving payment back from you by check, and then processing that paperwork. The insurance company saves money by collecting payments electronically and can then pass on the savings to you.

You Usually Can't Pay Premiums Monthly Without EFT

Again, about half the companies will not allow you to pay monthly if you don’t pay by EFT. If you want to pay a direct bill with those companies, you can only pay quarterly (3 months at a time), semi-annually (6 months), or annually (12 months). Coming up with a 3-month premium payment can be challenging for many of you folks that are on a fixed income in retirement.

Paying a Direct Bill is a Hassle

I know that’s the way it is for me. I set up every bill I can to be paid automatically by some electronic means. It’s just a pain in the butt to remember to send off a check in the mail for each bill by the due date every month. It seems like each monthly bill that I have to pay is due on a different day of the month too. It’s easy to forget and then have to deal with those late notices, and even late fees (although Medigap plans don’t charge late fees).

It’s Very Easy for Your Policy to Lapse Without EFT

It just makes sense when you think that it’s a lot easier to have your policy lapse if you are responsible for directly paying your bill every month instead of it automatically coming out of your checking account. Now, Medigap companies are required to give you a grace period of at least 30 days; some companies give you even longer than that to pay your premium. But once that grace period is up, your Medigap plan will be cancelled and you’ll be left without a supplement.

You may be thinking to yourself that you’re much more responsible than this. You pay your bills on time, and you’ve never had to pay a late fee in your life, let alone have that service be cancelled or shut off. I don’t doubt that, but it’s those special circumstances that can really trip you up.

It could be any one of these:

• You’re in a car accident and in the intensive care wing at the hospital for 4 weeks.
• You get a hip replacement and the surgery doesn’t go as smoothly as planned. You’re in the hospital for 6 days, then come home in a lot of pain, and pretty out of it because of your pain meds.
• You have a stroke and get put in a skilled nursing facility for 3 months.
• Your spouse suddenly gets ill and passes away and you’re left coordinating planning the funeral and burial activities with family, as well as dealing with the emotional pain of it all.

There are lots of things that can happen to distract you long enough to not pay your Medigap premium. And if you’re the one who is going through medical issues, that’s the worst time for your coverage to lapse. You could easily be stuck with tens of thousands of dollars of medical bills because your Medigap coverage lapsed when you needed it most.

If you’re single or widowed, this risk is even more possible for you, because now you don’t have a spouse that can help you take care of the payment while you’re getting better. However, even if you are married, many times only one spouse handles the financial matters. So, if your spouse handles paying the bills in your family, you may not even realize this premium has gone unpaid while they are going through their medical issues, until it’s too late.

Conclusion

Do yourself a favor, make things simpler, and just have your premium automatically deducted from your bank account or credit card. My job is to help you avoid big financial traps in pitfalls in retirement. This should be one that’s easy enough to avoid.