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Annual vs. Monthly Life Insurance Premiums: Which is More Cost-Effective?

A life insurance premium is a set amount that a beneficiary pays monthly or annually for their life insurance policy. A life insurance policy only remains active as long as the beneficiary pays their premiums. Missing payments could result in the insurance company canceling the policy.

Because permanent life insurance policies accumulate cash value, they tend to have higher premiums than term policies.

Most insurance companies allow beneficiaries to choose whether to pay their premiums monthly or in a lump sum each year, and some companies charge extra fees for paying with a credit card.

Cost Savings Through Annual Premiums

Though many beneficiaries find monthly premium payments easier to manage, you’ll save money in the long run — usually around 3-5% — if you pay your life insurance premium annually. 

Annual payments are usually more cost-efficient because it’s simpler for an insurance company to process one lump sum each year rather than 12 monthly payments. If you opt to pay your premium on a monthly basis, your insurer will likely tack on administrative fees, which can rack up over time.

Plus, if you make just one premium payment per year, you’re less likely to miss a payment, which could put your policy at risk of lapsing or getting canceled.

The Benefits of Monthly Premiums

Monthly premiums are more manageable for many beneficiaries since yearly premiums can get costly. 

Annual premium prices for life insurance vary depending on your policy type, age, and sex, among other factors. Generally speaking, however, adults under 60 can expect to pay between $200 and $800 per year for term life insurance, or between $4,000 and $11,000 per year for permanent life insurance.

Not everyone can afford to pay hundreds or thousands of dollars in one lump sum. Monthly payments for term life insurance tend to hover around $20 to $30 per month, which is easier to manage for many.

How to Choose the Best Payment Frequency for You

You should ask yourself the following questions before settling on a payment frequency:

  • What can you afford? Evaluate your premium price, income, and life expenses. Can you afford to pay your annual premium in a lump sum?
  • What works best for your budget? Accounting for the marginal increase in cost over time, would it suit your budget better to spread out your premium over 12 months?
  • What works best for your schedule? Consider your schedule and level of self-discipline. Would you have trouble finding time or remembering to pay your premium every month?

Depending on your policy type, your age, and other personal factors, your life insurance premium price can vary drastically.

Where adults in their 50s or younger would pay around $800 or less for a term policy’s annual premium, those in their 60s might pay between $2,000 and $4,000. Beneficiaries in their 70s could pay up to $15,000. Prices jump significantly later in life, meaning monthly payments might be easier.

Premium Pitfalls to Avoid

Though many life insurance companies allow you to choose a premium payment frequency, not all do. First, make sure your insurer gives you the option to pay either monthly or annually.

If you’re considering monthly payments, consider whether your insurance company offers an automatic payment system. And if it does, look into the specifics; you’d probably have to set up electronic funds transfer (EFT) payments. Most insurance companies want to avoid the hassle of processing a paper check every month, so if you’re set on paying by check, you may have to choose annual payments instead.

No matter which frequency you choose, make sure to read through your life insurance policy first. It’s important to know the fine print before making any commitments.

Review Your Policy Annually

You might save a little on your life insurance premium if you opt to pay it in an annual lump sum rather than with monthly payments. However, many beneficiaries cannot afford to fork over hundreds or thousands of dollars at once. These individuals might find monthly premium payments easier to manage.

Assess your income, budget, and schedule to determine whether you can afford to pay annually and whether you’d have trouble remembering or finding time to make a premium payment every month.

Every year, reevaluate your policy and your financial situation to ensure you choose the best payment frequency for the upcoming year.

Plan for your family’s future. Get a life insurance quote today.

Get a quote

Plan for your family’s future. Get a life insurance quote today.

Get a quote