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Insurance Life Insurance

Should You Pay Life Insurance Premiums Monthly or Annually?

Updated Jun 14, 2023   |   3-min read

For many, life insurance is a reliable way to provide financial security to their loved ones after their death. However, the process of purchasing life insurance is often riddled with confusion. For example, you may wonder whether you should choose term life insurance or whole life insurance, or what life insurance company best fits your needs. Amid these key decisions, you also need to consider how you will pay your life insurance premium.

Payment plans and life insurance rates vary from policy to policy. Most providers allow policyholders to pay monthly, semi-annually (twice a year), quarterly (four times a year), or annually. Here, let’s look at the benefits of making payments annually and monthly.

Paying Life Insurance Premiums Annually

One of the biggest benefits of choosing annual payments is cost savings, as most life insurance companies offer significant discounts for paying in full once a year. Depending on the policy type, you may be able to save anywhere from 2 to 8 percent of the total annual premium. If you’re paying your whole or permanent life insurance premium annually, you may even find that the savings and return on investment can be higher than some good stocks. Of course, it’s always best to thoroughly weigh all investment options before making your decision.

If you are considering making an annual payment to save money, then shopping around for multiple life insurance quotes is key. While most of the top life insurance companies do incentivize annual payments, they don’t do so equally. Liberty Mutual, for example, typically offers an annual payment discount of 8 percent, while Pacific Life only offers a 2 percent discount for annual payments.

In addition to saving what could be a substantial amount on your policy premium, paying annually gets life insurance out of the way and frees of your monthly budget for other obligations. Simply pay your premium once, in full, and you can forget about the payment for 12 months.

>> Read More: How Life Insurance Works

Paying Life Insurance Premiums Monthly

Depending on your age, health, and the insurance type (term life or permanent) and the policy amount you choose, you may pay from a few hundred dollars a year to a few thousand. If your financial situation prevents you from parting with the full cost at one time, making monthly payments may be ideal.

Monthly premium payments spreads the payment out over a year. Allowing life insurance to join the ranks of your other monthly bills, like mortgage payments, utilities, and phone bill can make it easier on your budget.

Monthly premium payments may also provide you with more liquidity and earning power. You can invest the money you would have spent in one annual payment in assets that can yield higher returns than a permanent life insurance policy provides. Savvy investors should weigh the return on their policy versus other investment strategies, like mutual funds or stock options.

Bottom Line

When it comes to life insurance costs, be sure you can pay the bill, whether monthly, quarterly, semi-annually, or annually. If you can’t make the payments, then you risk a disruption in your life insurance coverage.

If you’re looking for the best way to save money on your life insurance policy, then consider making an annual payment, which can save you thousands of dollars of the life of your policy. However, if you can’t make the lump-sum annual payment, don’t let that deter you from life insurance. Many people pay their premiums monthly.

Consult your life insurance agent to best understand your payment options, and learn how much you can save by paying annually. Work together to identify the benefits of annual or monthly payments and find out what works with your specific financial situation.