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Can I save money paying my life insurance premiums annually versus monthly?

Do you prefer to learn by watching? We answer this question in a video below. Click here to jump ahead.

Your life insurance premium is the cost you pay to keep your coverage active. This premium is determined by your risk class. Your risk class is determined by a number of individual factors such as your age and overall health.

» Learn more: What Is a Risk Class?

Your Life Insurance Premium Payment Options

Typically, life insurance buyers choose between two forms of payment: monthly payments or annual payments. There are pros and cons of each.

Choosing Monthly Payments

+ Financially easier to manage because they are smaller payments
– EFT setup often required i.e. auto pay through your savings or checking account
– Administrative fees included

Choosing Annual Payments

+ Only having to pay once per year is convenient
+ Costs less overall because there are no monthly administrative fees
– May not be feasible for all budgets

When you’re running term life insurance quotes and deciding whether you want to pay monthly or annually, keep in mind it’s not as simple as dividing or multiplying by 12 when comparing the two. This is because of the extra administrative fees added onto the monthly option.

In order to be as transparent as possible, we do include the monthly fees in our quoting tool. This way there aren’t surprises at the end of your buying process.

As you can see in the screenshots below, simply taking the monthly quote and multiplying it by 12 does not equal the annual price. Using the Protective quote as an example, multiplying $11.83 by 12 is $141.96. But the actual annual premium is less than that at $138.35. It’s less because the annual option has fewer fees.

Image of the Quotacy all carrier page showing monthly prices.

Image of the Quotacy all carrier page showing annual prices.

 

» Calculate: Life insurance needs calculator

How Do I Pay for My Life Insurance Premiums?

Paying with Paper Checks

If you prefer to send in a paper check for every life insurance premium, you need to choose to pay annually. If you rather have a monthly payment schedule, most companies will require you to set up EFT payments.

Why?

It’s much easier to forget to pay your premiums if you need to send in a paper check every month. It’s more work for insurance companies to keep track of all of their customers’ paper checks coming in so frequently. And when customers forget to pay, the insurance company as a courtesy sends out payment reminders.

More policies would lapse more often requiring grace periods and reinstatement processes to occur much more often. All of these things cost time and money—which would mean forcing customers to pay more.

To keep costs lower, companies require the automatic EFT payments for those who choose to pay monthly.

Paying with Electronic Funds Transfer (EFT)

EFT payments automatically withdraw premium payments directly from your checking or savings account each month. You can choose this option if you pay annually, but it’s required if you pay monthly. It’s an easy way to make sure your premium gets paid on time so your policy doesn’t lapse.

Paying with Money Orders or Cashier’s Checks

Paying your life insurance premiums with money orders or cashier’s checks is generally not permissible because the insurance companies want to make sure you have a U.S. bank account.

Paying with Credit Cards

There are a few insurance companies that allow you to pay your initial premium payment on a credit card, but the majority of companies don’t allow it on your future payments. Most companies don’t allow credit card payments whatsoever.

Why?

There are quite a few reasons why life insurance companies don’t allow credit card payments:

  • Typical merchant fees charged for credit card transactions are 3-4% and can be higher for cards that have to be keyed in (versus swiped)—which would be all premium credit card payments.
  • Credit card payments would add an additional step to the posting process. The processing staff would have to post the payment and then key in the credit card numbers. These steps are extra time and money, not to mention there is extra opportunity for errors.
  • Credit cards expire whereas savings and checking accounts do not. Life insurance companies would be reaching out to their customers frequently needing updated card information to ensure policies don’t lapse. Again, these steps would require extra time and money.

Life insurance companies are handling millions of policies at any given time. In order to keep up with the tasks required to process and monitor credit card payments, they would need to hire additional staff. This would trickle down and force applicants to pay more. Overall, it saves consumers money if the life insurance companies do not allow credit cards for premiums payments.

Life insurance companies have to do less administrative work if a client pays annually, so they provide annual payers a discount.

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How Much Money Would I Save by Paying Annually?

Life insurance companies have to do less administrative work if a client pays annually, so they provide annual payers a discount. Depending on the insurance company, this discount is usually about 3-5%.

Sample Life Insurance Premiums for a $500,000 20-Year Term Policy for a Healthy 30-Year-Old Male
Life Insurance CompanyPremium if Paying MonthlyMonthly Premiums over 12 MonthsPremium if Paying AnnuallyMoney Saved if Paid Annually
Banner Life$20.00$240.00$232.51$7.49
Protective$20.00$240.00$233.95$6.05
AIG$20.01$240.12$234.00$6.12
Pacific Life$20.19$242.28$237.50$4.78
United of Omaha$21.22$254.64$242.50$12.11
Principal$21.43$257.16$244.93$12.23
Haven Life$20.17$242.04$242.00$0.04
SBLI$21.32$255.84$245.00$10.84
John Hancock$26.21$314.52$303.00$11.52
Lincoln Financial$28.44$341.28$325.00$16.28
Prudential$33.25$399.00$380.00$19.00

While those yearly savings don’t seem like much, they do add up over time. Also, the higher your premiums, the more you would save. Consider an older individual buying a larger amount of life insurance.

Sample Life Insurance Premiums for a $1,000,000 30-Year Term Policy for a Healthy 45-Year-Old Male
Life Insurance CompanyPremium if Paying MonthlyMonthly Premiums over 12 MonthsPremium if Paying AnnuallyMoney Saved if Paid Annually
Banner Life$159.27$1911.24$1852.00$59.24
Protective$159.28$1911.36$1862.90$48.46
AIG$152.53$1830.36$1784.00$46.36
Pacific Life$157.50$1890.00$1852.99$37.01
United of Omaha$175.22$2102.64$2002.50$100.14
Principal$162.14$1945.68$1853.00$92.68
Haven Life$166.83$2001.96$2002.00$-0.04
SBLI$155.27$1863.24$1784.75$78.49
Lincoln Financial$162.14$1945.68$1853.00$92.68
Prudential$171.06$2052.72$1955.00$97.72

You may be wondering what happens if you decide to pay your term policy’s life insurance premiums annually, but die at the beginning of your term year. For example, what if you pay your annual premium of $500 in March and die in April?

Many states require life insurance companies to return the “unearned” premiums. And even if a state does not require this, many life insurance companies still do so as a courtesy. So, not only would the insurance company be writing a check for the death benefit total, they would also write a separate check refunding the premiums that would have covered May through the following February. (At least for term life insurance policies, some permanent policies have different rules.)

Where Do My Life Insurance Premiums Go?

Insurance companies mainly use the money you pay in three ways:

  1. Premiums go toward paying for day-to-day operations.
  2. Premiums go toward death benefit claims the company pays to beneficiaries of other policies.
  3. Premiums are invested by the insurance companies to maximize profits.

If you’re curious about the financial strength of the life insurance companies Quotacy works with, check out our life insurance company review page. We only work with top rated companies so you can buy with confidence.

» Compare: Term life insurance quotes

Applying for Term Life Insurance on Quotacy

When you run a term life insurance quote on Quotacy.com, the quotes are shown as monthly payments until you get to the Choose a Policy page. Here is where you can opt to display the quotes as Annual instead.

Image of the Quotacy all carrier page showing annual prices.

 

Once you decide on a policy, whichever premium mode (monthly or annually) is displayed is what your application will be set up as; however, you can ask your agent to change this during the buying process if you decide to switch to a different option. You can also opt to pay quarterly or bi-annually, but these options are chosen less frequently.

Buying life insurance is an important purchase for you and your loved ones. We’re here to help make the process as easy as possible and keep you updated every step of the way.

» Learn more: Are Term Life Insurance Rates Worth It? 

Watch the Annual vs Monthly Premiums Video

Video Transcript

Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.

I’m Jeanna and I’m Natasha.

Today’s question is:
 
Can I save money paying my life insurance premiums annually versus monthly?

 
 
Yes, you can save some money each year if you choose to pay your life insurance policy premiums annually.

The frequency in which you pay is called your mode of premium. Life insurance premiums can be paid annually, semi-annually, quarterly, or monthly. The most common mode is monthly.

» Calculate: Life insurance needs calculator

Whether you pay monthly or annually is up to you and there are pros and cons to each.

Paying monthly is easier to manage because they’re smaller payments, however, the insurance company has to process this payment each month so there are more administrative fees involved in paying monthly versus annually.

Paying Monthly for Life Insurance

+  Smaller individual payments are easier to manage and budget.

–  Most insurance companies require auto-pay setup upfront.

–  Additional administrative fees means a higher total cost.

 
 
Paying annually may not be feasible for all budgets but because there are no monthly administrative fees you can save money year-over-year.

Paying Annually for Life Insurance

+  Paying only once per year is convenient for some.

+  No administrative fees means a lower total cost.

–  Large upfront payments aren’t realistic for many budgets.

 
 
Paying annually may not be feasible for all budgets but because there are no monthly administrative fees you can save money year-over-year.

Since there is less administrative work involved, life insurance companies provide annual payers a discount. Depending on the insurance company, this discount is usually about 3-5%. While 3-5% may not seem like much, it does add up.

For example, a 45-year-old male paying $175.22 each month for his United of Omaha 30-year, $1,000,000 life insurance policy could save over $100 each year if he switched to an annual payment.

Sample annual versus monthly life insurance premium pricing

If you go to Quotacy.com and run a term life insurance quote, determining your potential annual payment is not as simple as just multiplying the monthly quote by 12. Your annual payment would actually be less than the calculation because our online monthly quotes include the extra fees. To see annual estimates keep moving through the quoting tool and you can change your quote to annual before applying.

screenshot of monthly term life insurance quote from Quotacy.com

screenshot of term life insurance quoting process from Quotacy.com showing annual premium option

Now you may be wondering: if I pay annually and die soon after I make a payment, does the insurance company just get to keep that extra amount? For example, let’s say your policy’s annual premium due date is March 1st and you die April 1st.

Many states actually require insurance companies to return what is called unearned premium. In addition to paying a death benefit check to the beneficiaries another check would be sent which would be the refund of the portion of unearned premiums. And even if you live in a state that doesn’t require this, many life insurance companies still return the premiums as a courtesy.

When you apply for life insurance online through Quotacy you can choose whether you want to pay monthly or annually. If you change your mind throughout the approval process just let your Quotacy agent know and they can update the insurance company.

» Compare: Term life insurance quotes

If you have any questions about life insurance, make sure to leave us a comment. Otherwise, tune in next week when we talk about how using tobacco affects your life insurance costs.

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content Manager

Natasha is a writer and content editor at Quotacy. She is also co-host of Quotacy’s YouTube series. She can't get enough of life insurance and outside of work is also working toward her Chartered Life Underwriter designation. Connect with her on LinkedIn.