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Which Is Cost-Efficient: Paying Premium Monthly or Annually?

dateKnowledge Centre Team dateApril 29, 2021 views321 Views
Which Is Cost-Efficient: Paying Premium Monthly or Annually?

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.

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.

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.

1. 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.

2. 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.

3. 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 iSelect Star 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 Oriental Bank of Commerce Life Insurance brings you the best plans with easy payment options like the iSelect Star term insurance plan, the premiums for which can be paid monthly or annually, or pay for a limited period depending on your situation.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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