Which is Cost-efficient: Paying Premium Monthly or Annually?

2022-04-29

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In the past decade, awareness among Indian citizens about the importance of buying life insurance policies has increased exponentially. However, one of the most frequently asked questions when trying to find out the life insurance plan is whether paying the premium monthly or annually is the most cost-efficient choice.

Key Takeaways

Annual premiums may be more cost-effective as some insurance providers offer discounts, whereas monthly payments often include additional charges.
Monthly premium payments offer flexibility and are ideal for those with tighter budgets or irregular income.
Choosing the right payment frequency depends on your budget, lifestyle, and long-term financial goals.
Annual payments are more convenient for busy individuals who prefer a one-time transaction over remembering 12 separate payments each year.
Life insurance providers offer flexible payment modes, including annual, monthly, and limited pay options, to suit different needs.

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Annual Vs Monthly Premium: An Overview

Factor	Annual Premium	Monthly Premium
Premium Amount	Bigger	Smaller
Discounts	Possible	Not Available
Number of Payments	1 per year	12 per year

Most policies allow you to choose between monthly, annual, and bi-annual life insurance premium payment options. The question of whether you should select a monthly or annual premium payment cannot have a straightforward answer as it depends on multiple factors. Choosing how frequently you should pay the premium must be decided after considering a host of factors.

Did You Know?

Insurers often waive medical tests for online term plans up to ₹50 lakh coverage. It is faster and easier!

Source: IRDAI Guidelines

How to Decide whether to Pay Life Insurance Premium Monthly or Annually?

When deciding if the premium should be paid annually or monthly, you must consider certain factors. Listed below are three factors that may help you find the best life insurance plan suitable for you.

Total premium amount and Individual budgets

Every individual has their budget when it comes to important investments like a life insurance policy. Most of us have set some investment goals that we aim to achieve. While you may have certain goals and coverage requirements, it is only when your capacity for spending on the policy premium aligns with these expectations that you can realise them.

The amount you can pay towards your insurance premium must be thought of very carefully before going for the desired policy. Factors like EMIs, debts and liabilities, tuition fees, etc., must be considered beforehand, and only then should the premium amount be determined. Failure to pay the premium amount can cause your policy to lapse and be terminated.

Only after deciding what the total premium amount will be you can consider the frequency of payments. While annual payments are more convenient and can possibly come with a discount with some companies, monthly premium payments have their own eminence. Each individual’s budget is different, and numerous factors need to be considered before you even determine the premium amount you can pay. Thus, it is convenient to divide the amount into 12 small payments than making a single premium payment.

It may work for people who cannot manage their budget in a way that allows them to pay the whole amount in a single shot. They can successfully clear the premium amount without worrying about saving it throughout the year and then making the payment.

If you are looking for only cost-efficiency and are capable of paying the whole premium amount for a year at once, annual payments are indeed the best choice to make. However, if your budget works better with monthly payments and you can make a life insurance premium payment each month without fail, the extra cost is not too significant.

Duration of the policy

The duration of your life insurance policy is one of the key factors to choose the payment frequency. The older you are, the shorter the life insurance plan you can take. However, determining the plan duration can depend on other factors such as your budget for the premium payments. The shorter a life insurance plan’s duration is, the more affordable are its premium payments. Hence, it is advised that you must buy a life insurance as early as possible.

Learn the advantages of buying life insurance at an early age.

Also, you must consider financial liabilities like loans and debts. If you have a loan that requires 20 years to be repaid, your policy should be valid for at least that long so that your loved ones do not get stranded with the loan repayment after you. Other financial liabilities can include school tuition. If you have children who are going to need a school or college fee for the next 15 years, your policy of choice must be at least that long.

When deciding whether to pay your premium instalments annually or monthly, it is necessary to consider exactly how long you will have to continue paying them. By considering this beforehand, you can ensure that the insurance premium will not interfere with any other long term goal.

For example, you decide to take on a policy that requires you to pay a premium for the next ten years, and your long term goals include buying a new house in five years with the help of a home loan. Now, if you are contemplating taking on an insurance policy that requires you to make a yearly payment, you must consider if paying a big amount like that at once can hinder your home loan repayment. You may find it easier to pay a smaller sum each month than the alternative in this case.

Number of payments

Due to their current lifestyle, most people lead extremely busy lives. What leisure time people do get, they undoubtedly want to enjoy. Several sectors have thus launched features that can make your leisure time as uninterrupted as possible. For example, banking applications allow automated and scheduled payments to businesses and individuals.

In such scenarios, many people simply choose annual payments over monthly payments for their life insurance plans due to the convenience of making a single payment over making 12. There are some term insurance plans like n that offers limited premium payment option as well.

Understand the difference between limited and regular pay insurance plan.

Do Life Insurance Companies offer Discounts when you Pay Premiums Annually?

Many companies offer a discount on the insurance premium amount for annual payments. This discount varies from company to company and ranges from 0 to 5%, depending on the company’s policy. While there is no compulsion for life insurance providers to offer such a discount, more companies have started doing it due to market competition.

To sum it all up, if you are looking for only cost-efficiency and are capable of paying the whole premium amount for a year at once, annual payments are suitable. However, if your budget works better with monthly payments and you can make a life insurance premium payment each month without fail, the extra cost is not too significant. Canara HSBC Life Insurance brings you the best plans with easy payment options like the iSelect Smart360 Term Plan, the premiums for which can be paid monthly or annually, or pay for a limited period depending on your situation.

Glossary

Premium: The amount paid periodically to the insurer to keep the life insurance policy active and valid.
Policy Duration: The length of time for which a life insurance policy provides coverage, usually defined in years.
Term Plan: A life insurance plan that covers a specific period and pays benefits only if the insured dies during that term.
Limited Pay Option: A feature allowing you to pay premiums for a limited period while enjoying coverage for a longer term.
Life Insurance Lapse: A policy status when premiums are not paid within the grace period, causing the coverage to terminate.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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