Male   Female
  • Is It Less Expensive to Pay Life Insurance Premiums Monthly
  • May 26, 2017
  • life insurance payment options

    When it comes to a life insurance premium, you have the choice of whether to pay your premium on a monthly, quarterly, semi-annually or annually basis. Changing how often you pay premium could save you a lot of money.

    Most insurance companies will typically charge extra when you pay anything other than annually. This is a factor applied to the annual premium to arrive at the premium if you elect to pay on a semi-annual, quarterly, or monthly bank draft basis.

    The mode premium factor for semi-annual premiums ranges from 51 percent to 52 percent, which means you pay an extra 2 percent to 6 percent.

    The mode premium factor for quarterly premiums ranges from 26 percent to 30 percent, which means you pay an extra 4 percent to 20 percent by paying quarterly.

    The mode premium factor for monthly bank draft premiums ranges from 8.66 percent to 9 percent, which means you pay an extra 3.92 percent and 8 percent.

    The reason the monthly bank draft mode premium factor is more economical than the quarterly mode factor is that monthly bank drafts persistency is better than quarterly mode persistency.

    Companies charge these mode premium factors because when premiums are paid more often than annually, the company does not have the use of the premium for the entire year. In addition, depending on the mode of payment selected, there is a higher probability that the policy will lapse.

    You can judge whether you are willing to pay the extra cost by calculating the annual percentage rate (APR), which is, unfortunately, not required to be disclosed by insurance companies. Meaning, you may have to do it yourself. A tool to produce a good approximation can be found here.

    It’s important to keep in mind that the premiums on universal life policies are designed to be flexible. As such, the policyholder has the option of when to pay. Then, the application of the APR concept may arguably not apply, as life insurance premiums are not a debt (loan).

    Keep in mind that missing premium payments can cause a policy to lapse, especially when they are non-scheduled, less than scheduled, or the policy is underfunded.

    There has been some litigation in this area as to whether companies should disclose annual percentage rates (APRs). There are a few companies who have settled suits in this area and have added calculators to their websites.

    Should I Buy Term Life Insurance or Permanent
    3 Ways You Can Calculate Your Life Insurance Needs
    How to Find Misleading Information In a Life Insurance Policy
    Top Answers to Questions About Whole Life Insurance

    By Tony Steuer, CLU, LA

    Tony Steuer

    Tony Steuer

    Steuer, author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, has more than 25 years of experience and holds the Department of Insurance Analyst License (LA) as well as the Charted Life Underwriter (CLU) designation. Tony holds various leadership positions and has authored three books on the topic of life insurance.

    Steuer’s work has been awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy for his The Questions and Answers on Disability Insurance Workbook and The Questions and Answers on Insurance Planner. Forbes named Questions and Answers on Life Insurance: The Life Insurance Toolbook as one of their top nine great investment books.

    He’s also the founder of the Insurance Literacy Institute and creator of The Insurance Bill of Rights designed to empower consumers and to identify members of the Insurance Industry dedicated to strong professional standards.

  • Category: Articles Library, Frequently Asked Questions, Life Insurance, Most Popular, Term Life, Tips, Top Headlines, Whole Life

Leave a Reply

Archives

About

Consumer Insurance Guide SM provides a wide selection of originally-authored articles and expert advice targeted to the self-directed insurance shopper. Our mission is to provide consumers with useful, money-saving information on all things having to do with making sound insurance purchase decisions.

Consumer Insurance Guide SM is owned by Life Quotes, Inc. 8205 South Cass Avenue, Darien, IL. For editorial, content feeds, advertising and lead purchase opportunities, contact Robert Bland, Publisher at bob@lifequotes.com.

Life Quotes, Inc. owns and operates www.consumerinsuranceguide.com and www.lifequotes.com, two online consumer insurance information services that cater to the needs of self-directed insurance shoppers.

About Us  |   Contact Us  |   Press Releases  |   The Best Privacy Policy  |   Life Insurance  |   Careers
For Agents & Brokers  |   Site Map  |  


Copyright ©1984-2015 Life Quotes, Inc., 8205 South Cass Avenue, Suite 102, Darien, Illinois. Life Quotes, Inc. and certain of its personnel are licensed as insurance agents, brokers or producers in all states. CA agent #0A13858, LA agent #200696, MA agent #333509159. dba Life Quotes Insurance Services in CA under agent #0827712, in LA under agent #205078. dba Life Quotes Insurance Services, Inc. in UT under agent #90093. All rights reserved. Telephone (630) 515-0170. Founded 1984.
10.1.1.86