Here’s a quick tip for saving money on your life insurance policy… Pay the premiums annually if at all possible. Most insurers give you the option of paying monthly, quarterly, semi-annually, or annually. But guess what? Paying more often than once per year typically costs more. While insurers typically don’t disclose the effective annual rate of this additional payment, which is essentially interest, you can figure it out yourself using this calculator.
Take, for example, a $360 term life insurance policy. Let’s assume for the moment that the monthly payment option requires twelve payments of $32. That’s just two bucks extra per month… Totally worth it for the added flexibility, right? Well, if you do the math, that two bucks works out to an APR of 14.3%! That’s a pretty steep price to pay in order to avoid paying your premium up front.
Somebody has to explain the math to this dumb ol’ CFP, but how does an extra $24/year work out to 14.3% on $360? I pulled out the HP 12C and I figure the 2 bucks a month isn’t really a bad deal at all!
Hey dumb ol’ CFP…It works like this: IF the annual premium is $360, but you decide to pay monthly (at $32) all companies would require the first month in advance, this means that you are “financing” the other $328 over 11 months. His APR of 14.3% is right on the money. (not a good deal) I’m a believer in life ins to protect my family, not a believer in paying rates comparable to a credit card to break it down monthly.
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