For many people, life insurance can provide a measure of financial security for their loved ones after they pass away. However, many decisions go into the process of purchasing life insurance, including how you make your premium payments.
Payment plans and life insurance premiums vary by provider and policy. Most providers allow you to pay monthly, semi-annually, quarterly, annually or in full. There’s flexibility in how often you pay your premiums, but the choice affects how much you’ll end up paying for coverage. Let’s look at the advantages of paying your policy in full, making annual payments, or monthly payments.
Paying Life Insurance Premiums Annually
A significant benefit of choosing annual payments is cost savings, as you may be able to save up to potentially 30% by paying for your policy premium annually depending on the provider. Some insurance companies do not disclose the annual percentage rates (APRs) for policyholders. Don’t hesitate to ask your Experior Financial Group Associate for help in calculating the applicable annual percentage rate for your premium payment.
For example, if the monthly premium payment on the policy is $90.00 but the annual premium payment is $1000.00 by doing a simple calculation, you can determine the ratio would be 0.09. If we then take that percentage and view the chart below, which was created by The Insurance Forum, you’ll see that you can save approximately 17.2% if you pay this premium annually compared to monthly. This is a major cost savings that you’ll want to take into account when deciding on payment terms for your policy.
By paying for your life insurance policy annually rather than monthly, you will save money on your premium and free up extra money each month that can be better spent paying off debt or investing for retirement. Pay your premium in full once per year, and you can put it out of your mind for the next 12 months.
Paying Life Insurance Premiums Monthly
The cost of a life insurance policy can vary from just a few hundred dollars to thousands of dollars, based on your age, health, and whether you choose permanent or term life insurance. If you can’t afford to pay the full premium fee all at once, making monthly payments may be a good option for you.
Making monthly premium payments lets you pay for life insurance month by month, like you would any other bill. When you have life insurance as part of your budget, it can be easier to save money. Payment of monthly premiums may give you liquidity and allow you to build up a nest egg that is more flexible than the permanent life insurance policy you might be considering.
Is It Possible To Completely Pay Off A Whole Life Policy?
If you’re interested in paying off your whole life insurance policy, you might wonder if it’s possible. It is—but it’s not guaranteed, so there are important considerations to know before proceeding.
A paid-up whole life policy works in two ways:
- Premium payments – Once the policy owner has made enough premium payments, the policy will reach its paid-up status.
- Reduce Feature – Your whole life policy can be made paid-up by taking advantage of the reduce feature.
Regardless of which method you choose, the policy remains in force and premiums are eliminated. It offers numerous benefits as well. One of the biggest advantages is that it covers you for your entire life. Additionally, you can build up tax-deferred savings for the length of the policy.
How Paid-Up Life Insurance Policies Work
There are two kinds of paid-up insurance: paid-up status and paid-up additions. Paid-up life insurance can be a smart financial move. With paid-up status, you continue to have your policy in force without having to continue paying premiums. If you were to pass away, your beneficiary would receive the death benefit.
Paid-up additions are essentially miniature life insurance policies, where your cash value will accumulate through your premium payments. If, for instance, you pay 10 dollars, that 10 dollars will be added to your policy as cash value. Additionally, dividends earned by a whole-life policy are used to buy additional coverage, adding to your cash value. The policy is paid up, which means it doesn’t require any further financial commitment.
Converting Your Insurance Policy to Paid-up Status
You can keep your coverage in place without paying premiums, depending on the specifics of your policy. However, you should look at the details of your policy, as this option may not be available with every insurance company. If you decide to convert to a paid-up status, it means you no longer have to make premium payments moving forward. Premiums are deducted from your cash value account, which keeps your policy in effect.
That means that, depending on your policy’s guidelines, you may be able to end temporary or permanent payments altogether. Your death benefit could also decrease. If you die before your premiums are paid, your beneficiary will only receive the amount not yet paid on your policy.
Why Should You Consult With An Experior Financial Associate?
If you’re a savvy investor, you know that your life insurance policy is one of many options when it comes to planning your financial future. If you’re new to financial planning and investing, then you may need someone to help guide you through the process. When considering purchasing a life insurance policy, it is important to consider the return on your investment. Our Associates are experienced and willing to help you take the right steps to achieve your financial freedom. Experior’s client solutions are built around our proprietary Expert Financial Analysis software (EFA). It offers a simple, easy-to-follow financial program exclusively through Experior Associates. When you meet with an Experior Associate, they will complete a free, no-obligation Expert Financial Analysis. This customized financial plan will help the Experior Associate determine the right life insurance policy and premium payment method for you.