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.
As it turns out, it’s just this sort of billing practice that got Zurich Direct into hot water last summer. As a result, we ended up receiving a whopping $2.52 from the settlement even though we always paid for our policies annually.