Your life insurance premium is what you pay to the insurance company to keep your policy in force. The mode of premium payment refers to how often you make payments: annually, semi-annually, quarterly, or monthly. Annual and monthly payments are the most common payment frequencies. Annual payments save you some money and are a good option if you're able to pay a larger sum upfront. Monthly payments can be more manageable for the average person.
Read on to learn the pros and cons to different premium payment frequencies to figure out the best option for you.
Insurers typically offer a 3% to 5% discount for paying premiums annually
Monthly premium payments for a healthy 35-year-old can be as low as $25
Semi-annual and quarterly premium payments have little-to-no advantage because you are paying a large lump sum with no discount
Monthly vs. annual premiums
Monthly premiums are paid once a month, on the date of your billing cycle. While splitting up the premiums is better for some budgets, missing payments can risk a policy lapse. With annual premium payments, you only pay one lump sum to your insurer each year. Key advantages to annual premiums are fewer payments to track and a bulk discount.
Monthly vs. annual premiums at a glance
|Monthly premium payments||Annual premium payments|
|Discount||No||Yes, 2% to 5%|
|Payments per year||12||One|
|Sample premium||$26 to $31||$300 to $357|
|Best for||Someone who finds it easier to budget month-by-month||Someone who can afford to pay a large sum once per year|
Methodology: Premium payment amounts are calculated for a non-smoking 35-year-old male and female living in Ohio who qualifies for a Preferred health class, obtaining a 20-year, $500,000 term life insurance policy. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 11/11/2021.
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How to decide which mode of premium is right for you
Paying life insurance premiums semi-annually or quarterly rarely makes sense because you won't see a meaningful price discount for larger lump sum payments. So, should you pay policy premiums monthly or annually? That depends on your individual circumstances, including your income and budget.
For many, paying a large lump sum each year isn’t ideal. If it’s easier for you to track a monthly expense or you’d have to dip into your savings to pay upfront, there’s no harm in paying monthly premiums. On average, a healthy 35-year-old female pays $21.24 for a 20-year, $500,000 term life insurance policy.
But, if you’re equally comfortable paying annually or monthly, then it makes more sense to pay annually. Discounts mean you’ll almost always pay a lower premium, generally between 3% and 5% lower, and you’ll only need to worry about a single payment.
Which life insurance companies offer discounts for annual life insurance premium payments?
Most of the top life insurance companies offer a discount for paying annually, ranging from 0% to 5% for term life insurance policies. These are the approximate discounts currently offered by Policygenius’ partner insurance companies in 2022 — the actual discount you receive will depend on your policy.
Our life insurance reviews can give you a full picture of the top-rated life insurance companies.
Whether you choose a monthly or annual premium payment depends on your budget and overall financial picture. You could end up saving money in the long-run by paying annually, but the discount depends on your specific insurance company. The savings from a yearly payment with a discount may not be enough to warrant one large lump sum.
Not sure which mode of premium payment is right for you? Our licensed Policygenius brokers can help you compare the two options or make changes to your existing policy.
Monthly vs. annual premium payments FAQ
What is the average cost of life insurance?
Life insurance pricing varies based on several factors, including the type of coverage you buy, your age, your sex, your medical history, and any risky hobbies you have. Your premium will be unique to your personal profile, but you can use a coverage calculator to get an idea of what you will pay.
How do I pay my life insurance premiums?
Premiums can be paid annually, semi-annually, quarterly, or monthly (i.e., one, two, four, or twelve times per year). Your insurer should explain what payment methods you can use, but most accept checks and electronic bank transfers.
Is it better to pay life insurance monthly or annually?
For most people, monthly payments are best since they are easier to factor into your budget, and semi-annual or quarterly payments require larger payments without the benefit of a discount. If you can afford to pay a lump sum upfront each year, paying annually can be cost-effective since many insurers offer discounts on annual premium payments.