Given the choice between paying life insurance premiums monthly or annually, which would you choose?
Although the answer doesn’t seem obvious, you may be surprised to discover that you can save up to 8% by paying annually. Here’s how:
With interest rates of 2% to 3%, you will pay around 8% when paying your life insurance premiums on a monthly plan. For example, a policy that costs $1,200 annually would cost $108 per month for a total of $1,296 over twelve months. That’s an extra 7.4% that would otherwise be in your pocket.
Why Pay More? Is There a Benefit to Paying Monthly?
The only advantage we have found for monthly payments is that people who move homes have an easier time remembering to notify companies charging their bank account. We find people who pay annually have issues with policies lapsing when they fail to notify the company or agent of their change of address.
How to Switch to Annual Payments
Look at your policy and check for the month of issue. Then set up a reminder to contact your agent a month before the policy issue date. After you request to pay annually, your agent will explain what further action is required to make the change. It will be easy and you will stand to save lots of money.
Given the case where you do not have the funds to make an annual payment in the future, you always have the choice to change back to a monthly payment plan.
This principal applies to almost all your other insurance payments if you choose the monthly payment option. The only exception is the one company that accepts credit card payments and does not charge this premium.