When you purchase a life insurance plan, there are several aspects that you consider for a comfortable and profitable saving. Paying the premium is one of the most significant factors among them. Insurance providers offer a range of premium payment options for the different categories of policy seekers. While there are various considerations, annual premium vs monthly premium is highly debated for its cost efficiency analysis. So, let us understand the two options, how they differ and find which one is more cost-effective.
 

Monthly Premium vs Annual Premium
 

Insurers offer three options to pay the premium for life insurance and savings plans, the regular, single and limited premium payment options. A life insurance savings policy provides a life cover for the policy term and a guaranteed¹ return at maturity. In the single premium payment option, you will make a lump sum payment when you buy a savings plan during its inception. In the regular and limited premium payment option, you will pay the premium regularly throughout the policy tenure or for a limited term.
 

You can choose between the various options to pay the premium regularly when you buy a savings plan.For example, it can be monthly, quarterly, semi-annually or annually. Paying the premium monthly or annually is the most common among the options.
 

Therefore, for a monthly premium payment option, you pay the premium monthly for all 12 months in a year. Therefore, the amount is lesser, and the extent of discounts is less applicable. On the contrary, in an annual premium payment option, you make a single annual premium payment option. Therefore, although the amount is more, it is applicable for different discounts.
 

Which Is A Cost - Effective Option?
 

To decide on the cost-effective option among the two, you need to consider your financial commitments and future family obligations. Here are a few ways you can analyse the cost-effective option.
 

• Financial budget - Every individual has a distinct financial budget. For a salaried middle-class family, purchasing annual renewable life insurance might seem difficult, considering more premium cost payable at once. They might have financial obligations, such as routine expenses, EMIs, tuition fees, etc. So, finding more amount for the savings policy investment is hard unless they have a definite plan to save funds regularly.
  
  On the other hand, paying the premium once a year will seem convenient for businessmen who receive a substantial annual income. It is also because they may not have a steady flow of income to pay the premium monthly.
  
  Therefore, for a salaried person, paying a huge amount and for businessmen paying the monthly premium can increase the liability if there are insufficient funds. Paying the premium is certainly cost-efficient in the long term. However, it may not apply to a person with a definite monthly budget and higher family commitments.
  
  
• Policy tenure - The policy tenure is a significant factor that can help you decide on the life insurance monthly plan or annual plan. Suppose you have invested in the life insurance savings plan early in life and chosen a longer policy tenure. In that case, the premium is less annually and affordable monthly. However, choosing the policy tenure has several financial obligations. For example, suppose you have a home loan for 10 years. In that case, you should ensure that your life insurance savings policy extends to such duration to help reduce the financial burden for your family in the event of your unexpected death.
  
  And, if you are just married and planning for children, your financial obligations are subject to increase which compels you to extend the policy tenure for your life insurance plan. In such scenarios, you need to work on the life insurance monthly yearly premium payment calculation and find which can fit into your financial budget during the policy term without affecting your personal finances.
  
  
• Lifestyle - Every individual has a distinct lifestyle. Some people prefer completing their financial obligations instantly, staying peacefully throughout the year, and planning various activities such as going on a holiday, taking up a hobby and investing in it, etc. It will be a cost-effective option considering their unplanned events. On the other hand, people with a definite plan at different intervals in a year will find allocating funds monthly is cost-effective as opposed to a yearly life insurance plan. However, it is subject to individual preferences.
   

Therefore, although the annual premium payment is cost-effective considering the frequency of payments, processing charges and the applicable discounts, its cost-efficiency factor is detrimental to individual financial considerations. On the other hand, if the average monthly life insurance cost is affordable, it will certainly be a cost-effective option, and the difference in the cost considerations is not significant.
 

Conclusion
 

The annual and monthly premium life insurance plans have their distinct characteristics. The applicability of the cost-efficiency benefits is based on your lifestyle, personal finances and policy duration for the life insurance savings plan. Therefore, it is important to evaluate the cost, consider its affordability through the policy tenure based on your family obligations and decide on the most suitable option that is cost-effective for your financial scenario!
 

L&C/Advt/2022/Dec/3139