How to Pay for Your Term Life Insurance Policy

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Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites. You can find him on Twitter.

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UPDATED: Sep 17, 2020

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Nobody likes paying for term life insurance — or any kind of insurance for that matter. We all want to see something of value in return for our hard-earned money. Some forms of insurance show their value more regularly. Think medical insurance, for example. But with term life insurance there’s only one way to realize the value and get the benefit. Yeah, that’s the one.

Since none of us want to leave our loved ones unprotected, we’ll need to pay for a life insurance policy at some point. When that time comes for you, you’ll need to decide how to pay for your policy. Choose wisely, and you can save yourself some money. Here’s how to do it.

Premium Payment Modes

When you apply for a life insurance policy, you’ll be asked to select the “premium mode” you prefer. “Premium” in this sense just means the cost of the policy. Insurance companies often like to use complicated words (premium) when easier ones (cost) will do just fine. The “mode” is simply the frequency of premium payments, with the options being annual, semi-annual, quarterly, and monthly.

The least expensive payment mode is annual and the most expensive is quarterly (sometimes monthly, but this varies by company). The reason for this is because life insurance companies add a small surcharge to the policy cost to cover administrative costs associated with billing and processing payments. The more times they have to send you an invoice each year, the more it’s going to cost you.

You might be wondering why monthly isn’t the most expensive payment mode. Well, the monthly mode is unique in that nearly all life insurance companies require monthly payments to be set up as an automatic draft from a banking account. They will not bill you directly for the monthly mode. For many people, this is okay — and often preferred. But others do not like electronic funds transfers from their accounts. If this is a deal-breaker for you, you may want to choose a different payment mode.

So, how much more money are we talking about here? It’s a flat percentage that varies by company, but this example should give you a good idea of the difference:

Average Life Insurance Rates Based on Payment Schedule
Payment ScheduleTotal Premium DueAverage Rates For
Billing Period
Total Premium Paid
Annual Payment$1,000.00$1,000.00$1,000.00
Semi-Annual Payment$1,000.00$520.00$1,040.00
Quarterly Payment$1,000.00$265.00$1,060.00
Monthly Payment$1,000.00$87.50$1,050.00
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The amount may be negligible on smaller policies and significant on larger policies. Regardless, money is money, and we’d all like to keep as much as possible in our own pockets. So, if you can swing it, pay annually. It will save you money in the long run.

Types of Premium Payments

The life insurance industry is stuck in the dark ages in several areas. One such area is acceptable payment types. Do you like paying online with PayPal? Me too, but it’s not an option. How about Apple Pay? Google Wallet? Sorry.

Even credit cards are usually frowned upon (read:  not accepted) in this establishment. However, many companies will allow you to charge the very first premium payment only. Not likely to earn massive reward points with that. But, it can be a convenient way to get your policy coverage started quickly, which is what many people opt to do.

For regular premium payments, you have two choices: 1) paper check, and 2) electronic funds transfer (EFT). That’s it. You can usually set up EFT for any payment mode you choose, and it’s required for monthly. The only exception I am aware of is Transamerica Life, which will bill you monthly if your monthly premium amount is over $100.00.

To sum it up, types of acceptable payments are:

  • Paper check
  • Electronic funds transfer (annually, semi-annually, quarterly, and monthly)

Types of unacceptable payments are:

  • Everything else (This includes anything developed this century, cash, coins, money orders… You get the idea.)

In all seriousness, selecting your payment mode is not a critical decision to make when applying for term life insurance. If you want only to be bothered with it once a year, or want to save as much money as possible, then select annual. If you’d rather not see it or deal with it all, a monthly draft may be right up your alley.

Regardless of what mode you choose, remember you can easily change the mode at any time by simply completing a form. It may be a 3-ply carbon-copy form that you have to get notarized and physically mail to the company with a real stamp, but I digress.

You’re approved! The hard part is behind you now and the finish line is in sight.

Policy Issue

The life insurance company will now “issue” your new policy. That may sound overly formal, but all it really means is they will print it, put it together in a nice folder and mail it to our office.

We’ll then process the policy to see what’s needed from you to put the coverage in place. These items are called “delivery requirements.” Once we have this list together, we’ll send it to you along with the policy and a return envelope.

It’s important to return these items to us by the date noted on the list. Coverage will not start until we receive everything from you. Also, approvals do expire. So if you wait too long, you may have to start all over!

You may see one or more of these common delivery requirements when you get your policy in the mail:

  • The first payment or premium. This is usually payable by check, electronic draft, or credit card.
  • EFT and voided check. This is needed if you are paying monthly.
  • Delivery receipt. This is a form that states you received your policy.
  • Amendment. This is included when something has changed since your application. It’s often used to update information.
  • Good health statement. If your application has been in underwriting for longer than normal, you may need to sign this stating your health hasn’t changed since you applied.

Paying for Your Policy

Payment is almost always one of the delivery requirements needed to put your policy in force. It’s important to get this to us right away. Even if you send everything else in, coverage won’t start until we receive your payment.

If you are paying annually, semi-annually, or quarterly, you can pay your premium by check or electronic draft from a checking or savings account. Most companies even allow you to pay your first premium by credit card. If you are paying monthly, an electronic draft is required by all life insurance companies.

It’s time for some peace of mind.

We’ll check your delivery requirements then forward them to the life insurance company. We’ll then let you know when they’ve received them, and your coverage is in place. The effective date of your coverage, or “policy date” will be listed in the policy. Some companies will even advance the policy date to the day they received your payment.

That’s it! You’re all set.

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