Paying Annually to Save on Life Insurance

In today’s day and age, everything is more expensive than we’d hoped. Gas prices going up, electricity prices going up. We pay almost double what we would for our groceries as we would five or ten years ago, and getting affordable insurance is a battle. Whether that’s for our car, our home – or for our life.

Life insurance, which is a purchase many of us may have to make at one point in our lives, is an expense, although it’s relatively cheap as far as most insurance policies go. Where car insurance can cost you between $150-$300/month, life insurance may only cost as little as $25. Of course, any cost adds up with time, so it’s important to be aware of all the best ways you can cut costs.

Enter annual billing. It’s not an obvious way to get discounted life insurance, but you may be surprised to learn just how much it can save you on your policy overall. Here’s how.

Annual vs Monthly Payment Options

Most life insurance policies, whether those are permanent or term, are paid for via monthly payments. That’s the most common choice for many policyholders. People just find it easier to make payments once per month, alongside other payments like rent or mortgage payments, car payments, subscriptions, utilities, etc. Plus, it cuts down on the overall costs, separating the cost of a 12-month policy into 12 separate installments.

But with life insurance being as cheap as it is, paying for a 12-month policy one time isn’t as expensive as you might assume. A policy that costs you $25 a month would cost you $300/year, and so making that one payment a year might not be as much as you’d think.

Why is paying annually cheaper?

Because of interest rates. With an interest rate of 2% or 3%, you might end up paying 8% or more extra when paying your life insurance premiums on a month-to-month basis than if you had simply paid for your policy outright in one single installment.

It can be daunting to consider paying for your entire policy upfront but given the affordability of life insurance as it stands, $300-$500 once per year isn’t huge. It’s not like paying for the entirety of your car insurance premiums in one go, which can be a tad more expensive – around $1,500-$2,500. Life insurance, on the other hand, is affordable as is, and paying annually – once per year – can help you save even more money.

In a nutshell, the benefits of paying annually for life insurance in Canada are as follows:

• There’s a lower cost over time
• Paying once per year simplifies your financial planning and budgeting
• You receive discounts for annual payments from most insurers
• There’s less risk of missed payments and policies being cancelled
• You can build your policy’s cash value even faster

How do annual payments work?

As the name suggestions. Rather than paying each month, you end up paying a fixed amount once per year. You can save up for it, pay it, and forget about it. With annual payments, you’ll save the slight surcharge on each monthly payment. It doesn’t amount to crazy savings, but it’s easy to do, makes paying for your policy more convenient (since you don’t have to worry about it each month) and can amount to hundreds of savings over the years.

How do monthly payments work?

Paying monthly is the more popular choice, and there is reason for that. If you move homes often, it can be easier to remember to notify the companies that are charging your bank account. Sometimes those who pay annually may have their policies lapse if they fail to remember to notify their insurer of the change of address.

What are some risks of paying annually for life insurance?

Like with anything, there comes some risks with paying annually with life insurance. You might suffer a loss of flexibility in opportunities to make payment (and may only be presented with one means to make payments.) There’s an opportunity cost of tying up funds as well, and the potential risk of losing coverage if you fail to make your annual payment.

To negate this, make sure you are conscious of when you need to make your payment each year. Set a reminder. Remind yourself twice, three times, or four times if necessary. Sign up for automatic payments, but always ensure there’s enough funds in your respective accounts to afford your policy.

How do I switch to annual payments?

If you have opted to switch to annual payments, then great! Way to take hold of your own savings. Check the month of issue on your policy documents and set a reminder to discuss with your insurer a month prior to the issue date. If there’s any further action needed before making the change, your insurer will inform you of these potential steps prior to making the change.

It’s an easy switch, and it stands to save you considerably on your insurance. Too few people are aware of how best to save on their insurance policies, so making the swap to annual payments is something you now know that too few policyholders do as well.

By the way, the same principle applies to other insurance policies that you might have. So, as long as it’s financially feasible to do so (because $300/year is a lot different than a $2,500/year car insurance policy!) consider saving up and switching to annual payments.

Ask Excalibur Assurance for additional tips on how to save money on your life insurance policy, and give us a call to discuss if switching to annual payments is the move for you!