Updated: June 29, 2022
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Nobody likes paying for life insurance for a fixed term — or any type of insurance for that matter. We all want to see something of value 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 is only one way to realize the value and get the benefit. Yes, that’s it.
Since none of us want to leave our loved ones unprotected, we will need to pay for a life insurance policy at some point. When this time comes, you will need to decide how to pay the cost of your life insurance policy. Choose wisely, and you can save some money on yourself. Heres how to do it.
Life insurance premium payment methods
When you apply for a life insurance policy, you will be asked to select the Premium Mode you prefer. “Premium” in this sense means only the cost of the document. Insurance companies often like to use complex words (premium) when easier words (cost) are appropriate. The “mode” is simply the frequency of the annuity payments, with the options being annual, semi-annual, quarterly and monthly.
The least expensive payment mode is annually and the most expensive is quarterly (sometimes monthly, but this varies by company). The reason for this is that life insurance companies add a small surcharge to the cost of the policy to cover the administrative costs associated with paying bills and processing payments. The more times they have to send an invoice each year, the more expensive it will be.
You may be wondering why a monthly payment is not the most expensive method of payment. Well, the monthly mode is unique in that almost all life insurance companies require that monthly payments be set up as an automatic draft from a bank account. They will not bill you directly for the monthly situation. For many people, this is a good thing – and often a favourite. But others do not like electronic transfers of funds from their accounts. If this is a deal breaker for you, you may want to choose a different payment method.
So, how much money are we talking about here? It’s a fixed ratio that varies by company, but this example should give you a good idea of the difference:
The amount may be small in smaller policies and significant in larger policies. Regardless, money is money, and we all like to keep as much as possible in our own pockets. So, if you can swing, pay annually. It will save you money in the long run.
Types of installment payments
The life insurance industry is stuck in the dark ages in several areas. One such area is the accepted payment methods. Do you like paying online with PayPal? Me too, but it’s not an option. What about Apple Pay? google wallet? Sorry.
Even credit cards are usually rejected (read: not accepted) at this establishment. However, many companies allow you to collect only the first installment payment. You are not likely to earn huge bonus points with that. But, it can be a convenient way to quickly start covering your document, which is what many people choose to do.
For regular installment payments, you have two options: 1) a paper check, and 2) an electronic funds transfer (EFT). This is it. You can usually set up wire transfer for any payment mode you choose, which is required monthly. The only exception I’m aware of is Transamerica Life, which will bill you monthly if your monthly premium amount is over $100.00.
In short, the types of payments accepted are:
- paper check
- EFT (annual, semi-annual, quarterly, monthly)
The types of payments that are not accepted are:
- Everything else (including anything developed this century, cash, coins, money orders…I get the idea.)
In all seriousness, choosing your payment method is not a critical decision to make when applying for life insurance. If you want to bother only once a year, or you want to save as much money as possible, select yearly. If you’d rather not see it or deal with it entirely, the monthly draft may be right up your alley.
No matter which mode you choose, remember that you can easily change the mode at any time by simply completing a form. It might be a 3-layer carbon form that you should get from a notary and actually email the company with a real stamp, but I digress.
You have been approved! The hard part is behind you now and the finish line is in sight.
The life insurance company will now “issue” your new policy. This may sound overly formal, but all that really means is that they will print it out, put it together in a beautiful folder and mail it to our office.
We will then process the policy to see what is required of you to put coverage in place. These items are called “delivery requirements”. Once we get this listing together, we’ll send it to you with the policy and return envelope.
It is important to return these items to us by the date mentioned in the listing. Coverage will not start until we have received everything from you. Also, approvals do not expire. So if you wait too long, you may have to start over!
You may see one or more of these common delivery requirements when you get your policy in the mail:
- Down payment or installment. Payment is usually made by check, wire transfer or credit card.
- Electronic funds transfer and void check. This is required if you pay monthly.
- Delivery receipt. This is a form showing that you have received your policy.
- Modify. This is included when something has changed since your application. It is often used to update information.
- Good health statement. If your application has been under subscription for longer than usual, you may need to sign this stating that your health has not changed since you submitted the application.
Pay for your document
Payment is always a delivery requirement to enforce your policy. It is important to communicate this to us immediately. Even if you submit everything else, coverage will not start until we receive your payment.
If you pay annually, semi-annually, or quarterly, you can pay your premium with a check or wire transfer from a checking or savings account. Most companies allow you to pay your first installment by credit card. If you pay monthly, all life insurance companies will need an electronic draft.
It’s time for some peace of mind.
We will check your delivery requirements and then send them to the life insurance company. We’ll then let you know when they receive it, and your coverage is in place. The actual date of your coverage, or “document date”, will be listed on the policy. Some companies will even provide the document date to the day you received your payment.
This is it! You are all set.