January 18th, 2012 | Author: Mitch Reynolds

Save Money by Paying Annual Insurance Premiums

Another simple money saving tip – annual insurance premiums

Annual insurance premiums When people think about paying for their life and health insurance premium they think monthly payments are standard practice, but in reality insurance products are designed for annual premium payments. The convenience of paying your premiums monthly is a very costly feature offered to you by the insurance company to help Canadians buy the insurance they need with regular, smaller monthly contributions instead of coming up with a lot of money once each year.

If you thought the monthly premium for your life insurance (or health insurance policies for that matter) is simply 1/12 of the annual premium, you would be very mistaken. Almost all insurance companies in Canada charge more for their monthly premiums than if you were to make annual premium payments. How much more? A lot more than you might think, but because it is broken up into very small monthly amounts it is easily overlooked.

Modal Monthly Premiums

Canadian insurance companies call the extra cost of buying your insurance with monthly payments the modal factor. This modal factor is a simple mathematical calculation to convert annual premiums into monthly premiums. The standard modal factor is between 0.09 and 0.0875. If you were to divide one year by twelve equal parts (months) you would have a factor of 0.08333. At the highest rate, 0.09, if you were to multiply that number by 12 (months again) you would get 1.08. That means it costs you 8% MORE to have a monthly payment plan for EXACTLY THE SAME POLICY as annual insurance premiums.

Cost Comparison – Monthly vs. Annual Premiums

Let’s look at two scenarios. The first will be a young (age 30 – smoker) man/husband getting $500,000 of term 20 life insurance. If he was to pay monthly vs. Annually for EXACTLY THE SAME POLICY we will see how much money he saves over 20 years. The savings here will be modest, as the total cost for his life insurance is low. Next we will look at a 50 year old woman (non-smoker) buying Term 100 life insurance which she will need to pay for over the next 35 years. Her savings will be much more dramatic over her remaining lifetime.

Scenario 1

Man age 30, Smoker – Term 20 Life Insurance for $500,000

Monthly Premium = $70.65 (Assumption Life)

Annual Cost = $847.80

Cost over 20 years = $16,956

Annual Insurance Premiums = $785.00 (Assumption Life)

Cost over 20 years = $15,700

SAVINGS = $1,259

Scenario 2

Woman age 50, Non-smoker – Term 100 Life Insurance for $250,000 (assume she will pay for 35 years)

Monthly Premium = $208.35 (Unity Life)

Annual Cost = $2,500.20

Cost over 35 years = $87,507

Annual Insurance Premiums = $2,315.00 (Unity Life)

Cost over 35 years = $81,025

SAVINGS = $6,482

Even for a low cost life insurance policy like the $500,000 for the young man, the savings over 20 years add up to over $1,000 for the 20 years he has the plan. It is like getting more than one year of life insurance premiums for free. For the middle aged woman buying some permanent lifetime protection, she will spend over $6,000 extra for exactly the same policy of she chooses to pay monthly vs. annual insurance premiums.

Life Guard Insurance can help you save with annual insurance premiums

At Life Guard Insurance our brokers will always give you the option to pay your premiums annually vs. monthly. This should help you save a lot of money over time, leaving more to invest in your retirement savings plan or pay for that annual holiday. Contact us to find out more money saving tips for your life and health insurance.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about paying annual insurance premiums to save money would also be very much appreciated.