Steven has just purchased a new car fleet for his business and is considering taking out a 3-year insurance policy from his 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, Steven will pay $1,100 at the beginning of each month for 4 years. Interest is 9% p.a. compounding monthly. Alternatively, the lump sum payment is $44,000 today.

1. Should Steven pay their insurance monthly or as a lump sum?

2. 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?

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