Today in our insurance series I want to show how you can enjoy advantage of annual premium. Indeed, choosing the right manner of paying scheme for your premium payment in view of your life insurance policy can bring to you extra savings. It’s a matter of being smart and practical, though a little sacrifice is entailed here.
As part of insurance business policy, majority of these life insurances has an additional cost to your premium if such is paid in installment basis instead of being paid in one single payment within a year. Therefore, the premium which you paid in just one single payment as a policy option will require you less payment compared to the option of paying it under semi-annual, four times a year or in a monthly basis.
All life insurances observe this kind of payment system including the so-called unit linked insurance plans or ULIPs. Hence, all insurances which observe the traditional payment scheme system including endowment plan, money back plan, term assurance plan, and whole life policies will take from your pocket a greater and higher premium for the usual monthly, semi-annual or quarterly mode compared to the yearly mode which is lower in terms of payment.
For instance, Marco Anandti has a Life Insurance Corporation’s endowment plan with an annual premium for his policy considering his age and policy term, the amount turns out to be Rs 5,461. However, if Mr. Anandti opted for the semi-annual scheme then he will be paying the amount of Rs 5,546 which is Rs2,773×2 payments in a year. As the frequency of the premium’s payment changes from yearly to monthly, the policy premium also increases. If you will be opting to use the monthly scheme of paying your premium, then as a policyholder, you will actually be paying 8.33% higher than what is asked if you opted for the yearly mode for the said policy irregardless if he belongs to the same age bracket and has chosen for the same term and sum assured.
The reason why insurance companies charge their clients this additional amount is not just to overburden the policyholders nor for extra income of their company but it is primarily due to banking cost and other related processing fees incurred every time you pay to them. In other words, as the periodicity of your payment decreases, then your premium will eventually increase a little. For example, the total amount of three monthly premium payments is more than the quarterly payment, and the total amount of two quarterly payments is more than the half-yearly payment.
In addition, employees of insurance companies can reduce cost involved in their telephone bills in view of following up their customers who tend to forget in paying their premium punctually. Issuing of letter reminders to the policyholders can also be avoided if they opt to pay their premium just once annually. Another thing which can be avoided is the possibility of policy lapses and the incurred additional payments involved in view of not paying their premiums on time. If policyholders will opt to pay the once a year premium instead of the semi-annual, quarterly or monthly, then chances of forgetting to pay or lapses will be decreased and penalty as well will be avoided.
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In conclusion, policyholders should opt in paying their premiums once in a year to save extra cash for their expenditures and avoid the various hassles involved in the other mode of payments. Chances of non-payment are less likely in the monthly mode as companies insist on electronic clearing service (ECS). Some companies even penalize policyholders who choose monthly mode of payment and do not opt for ECS, by levying extra charges.
