Cost & Coverage
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One of the decisions you’ll have to make when buying a life insurance policy — after you decide how much coverage you need, what provider to go with, and who your beneficiary will be — is how often you’re going to pay your life insurance premiums.
Annual and monthly payments are the most common options that life insurance policyholders choose, and they each have their advantages.
In this article:
As with other types of insurance, your life insurance premium is the cost of purchasing the policy. It’s the payment that keeps your insurance policy active so your insurance company will do what you’re paying it to do. In the case of life insurance, your premium goes to the life insurance company so that they pay your beneficiaries the agreed-upon death benefit if you die.
When you first buy your life insurance policy, it goes in force when you make your first premium payment, and it remains active as long as you keep paying the premiums. If you stop paying your premiums, the policy will expire at the end of the grace period following your next payment’s due date.
Life insurance premiums are typically paid on an annual or monthly schedule but you can usually choose to pay premiums on a few different schedules:
If you want to get an idea of what the annual and monthly premiums are for your specific situation, we can help you quickly and easily get life insurance quotes.
There is no wrong way to pay your life insurance premiums. The most important thing is that you make your premium payments to your life insurance company on time and that you don’t let your policy lapse. But there are good reasons to pay annually, and good reasons to pay monthly:
1. You get a discount. Most life insurance companies will offer a discount if you pay annually. Here’s why: It costs more for the insurance company when a policyholder pays premiums monthly, because the administrative costs are higher. Like most businesses, life insurance companies also prefer to have money in hand rather than money incoming, and it’s worth it to them to incentivize you to pay upfront.
So how much can you save? That depends on the insurer, but the discount for paying annually is generally between 2% and 8%. (See the table below for annual payment discounts offered by the top life insurance companies.)
2. You only have to think about life insurance once a year. With an annual payment plan, you can write a check (or set up automatic draft) once a year and not think about life insurance for another 12 months.
1. You can spread the cost of the premium out over time. Sure, it’s nice to save on your premium, but there are a lot of reasons you may opt not to. You may not reliably have the cash on hand to pay annually, so the ability to spread the payment out over time is a benefit.
2. It may fit into your budgeting style better. Most people pay their bills on a monthly basis: mortgage or rent, utilities, gym memberships, etc. Adding another monthly bill can be easier for many people just because it’s what they’re used to doing.
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One of the most important aspects of being fiscally responsible is to make sure your money isn’t working against you. That means avoiding things like unnecessary fees and cost increases. If there isn’t a penalty for paying monthly, then you can make your decision based on your available funds and what will make a bigger headache for you: paying a lot at once or a bit throughout the entire year.
Whether you should pay the premiums for your life insurance policy monthly or annually depends on your individual circumstances, including your income and budget.
The best way to pay your life insurance premium depends on the way you budget and pay bills. That might mean it’s easier for you to add a monthly automatic expense or it could mean that one yearly payment works better.
But if you’re equally comfortable paying annually or monthly, then it makes more sense to pay annually, because that will almost always result in a lower premium due to the annual payment discount. After all, you’re getting the same coverage. Why should you pay more for it?
All of the top life insurance companies offer some discount for paying annually, ranging from 2% to 8%. Our life insurer reviews can give you a full picture of the top-rated life insurance companies rates, including each company’s annual payment discount.
|COMPANY||ANNUAL PAYMENT DISCOUNT|
|Mutual of Omaha||5%|
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Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
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