Q

Q

Should I pay my life insurance premiums annually or monthly?

A

A

If you can afford to pay your life insurance premiums annually, you may get a discount.

Nupur Gambhir

Nupur Gambhir

Published August 17, 2020

KEY TAKEAWAYS

  • Annual premium payments usually have a 2-5% discount and monthly premium payments can be as low as $20

  • Semi-annual and quarterly premium payments have little-to-no advantages because you are paying a large lump sum with no discount

  • Whether you pay your premiums annually or monthly depends on your budget

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, though some insurers allow you to pay semi-annually or quarterly. Each has its advantages — annual payments save you some money, but monthly payments could better fit into your budget.

IN THIS ARTICLE

What is a life insurance premium?

Your life insurance premium is the cost of purchasing the policy. It’s the payment that keeps your insurance policy in force so your insurance company does what you’re paying it to do — in the case of life insurance, pay your beneficiaries the agreed-upon death benefit if you die.

How life insurance premiums work

Your life insurance policy remains active as long as you keep paying the premium — 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.

  • Annual premium – once a year
  • Semi-annual premium – twice a year
  • Quarterly premium – four times a year
  • Monthly premium – twelve times a year — once every month

There is no wrong way to pay your life insurance premiums. The most important thing is that you pay on time and that you don’t let your policy lapse.

Choosing a method of payment that fits into your budget and lifestyle is the best way to prevent a policy lapse and keep your policy in force. Depending on your circumstance, there are advantages to paying your premiums or paying your premiums monthly:

What is an annual premium?

Annual premium payments mean that you only pay one lump sum to your insurer a year. It comes with a few key advantages, including no recurring payments and a small discount.

Annual premium payment discounts

Most life insurance companies will offer a discount if you pay annually. Here’s why: the company’s administrative costs are higher when a policyholder pays premiums monthly. Like most businesses, life insurance companies also prefer to have money in hand rather than money incoming, so they want 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 5%. (See the table below for annual payment discounts offered by the top life insurance companies.)

One life insurance payment 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. This means no missed premium payments — and low risk of your life insurance policy lapsing. (If your policy expires, you’ll have to get entirely new coverage with likely higher premiums due to changes in age and health).

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What is a monthly premium?

Monthly premiums are life insurance payments that are made once a month, on the date of your billing cycle. While splitting up the premiums are better for some budgets, missing payments can risk a policy lapse.

Spreading the cost of the life insurance out over time

It’s nice to save on your premium, but there are a lot of reasons you may opt not to. You may not have the cash necessary to pay a large sum annually, and the ability to spread the payments out over time might work better for your finances.

Monthly premiums may better fit into your budget

For most, a big lump sum upfront isn’t ideal. Paychecks are received on a biweekly basis, and bills for expenses like mortgage or rent, utilities, and gym memberships are often paid on a monthly basis: Another monthly bill may be easier to accommodate within that budget rather than dipping into a savings account for one upfront payment. And if you get your policy when you’re young enough, you may only be spending around $20 a month for your life insurance policy. Take a look at the monthly premiums below to get a sense of how monthly premium payments can fit into your budget:

AGE $500,000$750,000$1 MILLION
25Male$27.66$38.87$46.15
Female$21.76$29.95$35.55
30Male$28.73$40.48$48.20
Female$23.02$31.88$37.43
35Male$30.67$43.30$52.16
Female$23.02$31.88$37.43
40Male$41.02$58.48$72.69
Female$47.53$68.60$86.33
45Male$60.88$88.70$113.03
Female$47.53$68.60$86.33
50Male$94.57$138.68$176.97
Female$71.68$104.60$132.64
55Male$153.96$225.24$289.64
Female$108.88$159.50$209.21

Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smoker in Preferred health rating; quotes based on policies offered by Policygenius in 2020.

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Semi-annually or quarterly life insurance premium payments

What about paying semi-annually or quarterly? You’re better off choosing monthly or annual payments. Making premium payments quarterly and semi-annually increases the cost of your life insurance policy because of the administrative cost of collecting payments — furthermore, there’s no discount for paying quarterly so it’s not a popular choice.

How to decide whether to pay life insurance premiums annually or monthly

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 premiums 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?

Which life insurance companies offer discounts for annual life insurance premium payments?

Most of the top life insurance companies offer some discount for paying annually, ranging from 0% to 5% for term life insurance policies. 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 in 2020:

The bottom line

Whether you choose a monthly or annual premium payment depends on what works best for your budget. If you can make one annual lump sum payment, you could end up saving money in the long-run. But if splitting up payments monthly makes more sense for you financially, then the difference between a yearly payment with a discount and monthly payments may not be enough to warrant one large lump sum.

We don’t recommend going with a quarterly or semi-annual payment schedule because there are minimum benefits. You won’t get a discount and you’ll still have to shell out a large sum compared to monthly payments. If you think you might miss monthly payments and can’t make one annual payment, a quarterly or semi-annual payment might be worthwhile, but there are more advantages to choosing to pay your premiums monthly or annually.

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 monthly, quarterly, semi-annually, or annually (i.e., twelve, four, two, or one time per year). Your insurer should explain what payment methods you can use, but most accept checks and electronic bank transfers.

How often should I pay my life insurance premiums?

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.

About the author

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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