Speak with an experienced advisor! Let’s face it, in these tough economic times, everyone wants to save money. That is certainly true when it comes to buying life insurance and especially term life insurance. In fact, millions of people shop the internet every year visiting multiple websites to find the absolute best life insurance policy at the lowest possible rate. This can be hard work with all of the options available but usually well worth your time.
However, one of the simplest ways to save money on your life insurance requires no work at all. In fact, the easiest way to save money on your life policy rests in the choice of payment methods. Nearly every competitive life insurance company in the country offers four options to pay premiums: Annual, Semi-Annual, Quarterly and Monthly Bank Draft. These options are called premium modes and each mode has its own “modal factor”.
Following are examples of the most commonly used modal factors and their multiples. But remember, each life insurance company has its own modal factors and some companies are more competitive than others.
Annual Modal Factor: 1.0 or 1 X the annual policy premium
Semi-Annual Modal Factor: .52 of the annual premium
Quarterly Modal Factor: .265 the the annual premium
Monthly Modal Factor: .0875 of the annual premium
Let’s take a real life example to illustrate how easy it is for you to save on your life insurance policy. To keep it simple, we will say that a 20-year level term policy has an annual premium of $1,000. Following are the breakdowns of the actual premium costs (and savings) over a 1-year period as well as the entire 20-year level term period.
Annual Mode: $1,000 X 1.0 modal factor= $1,000 Annually or $20,000 over the 20-year level term period.
Semi-Annual Mode: $1,000 X .52 modal factor= $520 Semi-Annually X 2= $1,040 over the year or $20,800 over the 20-year level term period.
Quarterly Mode: $1,000 X .265 modal factor= $265 Quarterly X 4= $1,060 over the year or $21,200 over the 20-year level term period.
Monthly Mode: $1,000 X .0875 modal factor= $87.50 Monthly X 12= $1,050 over the year or $21,000 over the 20-year level term period.
An the winner is…..the Annual payment mode. By paying your life insurance premiums on an annual basis you can save anywhere from 2% up to 8% per year. If you look at the example above comparing annual payments with quarterly payments you find the quarterly premium is $60.00 a year or 6% more than the annual amount. Over the 20-year level term period, paying annually will save you $1,200.
So there you have it, by simply paying your life insurance payments annually, you can save substantially, even up to 8% in some cases. It is truly the easiest way to reduce your life insurance costs and requires nothing more than selecting the annual payment option or your life insurance application.
