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How does the use of funds differ for general insurance

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DBS Bank has just purchased a new car fleet and is considering taking out a 3-year insurance policy from their insurer. The insurance company offers them the option of paying their premium monthly for the full 3 years or upfront as a lump sum. Under the monthly payments, DBS Bank will pay $1,200 at the beginning of each month for 3 years, interest is 9% p.a. compounding monthly. Alternatively, the lump sum payment is $39,000 today.

How does the use of funds differ for general insurance companies and life insurance companies? Why is there a difference in the use of funds between the two?

Should DBS Bank pay their insurance monthly or as a lump sum?

Reference no: EM133112813

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