(MONEY Magazine) – If you're like most Americans, you buy insurance on some schedule other than a single annual payment--$90 every month for 12 months, say, rather than $1,000 once a year. But it's easy to lose sight of just how costly such payments--which are called fractional premiums--can be.

Suppose your yearly life insurance premium is $1,200 and your provider lets you make two semiannual payments of $620. That comes to $1,240. It would be natural to conclude that the extra $40 you're paying for convenience constitutes a 3.3% surcharge ($1,240 divided by $1,200). Natural but wrong. Think about it this way: After you make your first payment, you're essentially taking out a $580 loan ($1,200 minus $620) from your insurer to get coverage for the rest of the year. So you're paying $40 to borrow $580 for six months, and that translates into an annual interest rate of 14.3%, not 3.3%. Unfortunately, federal truth-in-lending laws don't require insurance companies to disclose the interest rates associated with fractional premiums, and almost none do. "Using conservative assumptions, fractional premium charges cost consumers an estimated $5 billion a year," says Joseph Belth, editor of the Insurance Forum, an Ellettsville, Ind. trade journal.

To find out what your insurance company is charging if you pay your premiums on a monthly, quarterly or semiannual basis, consult the table below, which shows the interest rates associated with varying fractional premium factors. To calculate your policy's factor, divide a single payment by your total annual premium. For example, if your annual life insurance premium is $1,500 and your monthly payment is $135, your factor would be 135 divided by 1,500, or 0.09. Then your rate would be 18.6%--ample incentive to pay your next premium in one pop.

--PETER KEATING