What Is An Annual Premium?

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    What Is An Annual Premium? How The Right Plan Can Help You Save

    When applying for insurance policies, insurance companies may offer you an annual premium plan instead of paying every month. But, what is an annual insurance premium and why should you consider it? In this guide, we break down the difference between these two payment plans and the reasons you would choose one over the other.

    Annual Premiums Explained

    An annual insurance premium means that instead of paying every month, you'll pay a lump sum to your insurance company once a year. Insurers often provide discounts for annual payments, which means that you’ll pay less overall for the same coverage. 

    The Benefits Of Annual Premiums

    Both life and health insurance policies may be paid for annually. A yearly policy premium comes with two distinct advantages, which are:

    You Only Need To Pay Once Every Year

    With an annual premium plan, you can write a check or set an auto draft to pay once a year. You don’t have to worry about staying on top of monthly deadlines, reducing the chance of missed insurance payments. 

    You Get Discounted Insurance Coverage Rates

    Insurance companies will offer you discounts on your insurance premiums if you pay every year. Insurers incentivize yearly payments because they save on administrative costs and can secure a sure source of money. Depending on the offer of the insurance company, you can expect around 2 to 5% in savings by paying annual premiums.

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    Monthly Insurance Premiums Explained

    Monthly premiums are an insurance policy plan where you pay once a month. While it allows you to spread out insurance premium fees, you don’t get any discounts on your insurance fees. There's also a higher risk of you missing a due date and letting your policy lapse. This could force you to get a new one – often, at a higher price.

    The Benefits Of Monthly Premiums

    Annual life insurance policy premiums can be more convenient, but there are also compelling reasons for you to choose a monthly insurance premium instead. Here are the advantages of paying for whole or term life insurance policies on a monthly basis.

    You Don’t Have To Pay A Huge Lump Sum

    While it's great to get a discount on your coverage cost, you may not have enough money on-hand to pay such a large amount annually. A monthly premium will be easier on your finances and could prevent you from being cash-poor during emergencies.

    It's Easier To Plan Your Budget Around A Monthly Premium

    Many recurring costs like rent and utilities are paid on a monthly basis. For this reason, it may be easier to factor in your insurance premium every month into your budget – just like an ordinary bill. It could be simpler to plan how much you can spend and save every month, instead of being forced to pay one large premium annually.

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    What About A Semi-Annual Or Quarterly Premium?

    Your insurance company may offer you a semi-annual or quarterly plan, where you pay twice or four times a year respectively. However, we don’t recommend paying for insurance on a semi-annual or quarterly basis because they don't reduce administrative costs or give you a discount.

    Do You Have To Pay Taxes On Your Insurance Premiums?

    As a general rule, no. Unlike buying goods, buying a policy from an insurance company does not require you to pay sales tax in addition to your premiums. Whatever amount your insurer quoted is the only amount you'll be paying to them every month.

    There are notable exceptions to this rule – prepaid life insurance, cash value plans, and employer-paid group life insurance are all examples of policies that have some tax liabilities. Ask your insurer for more information if you have any questions about additional fees or taxes.

    Get The Best Insurance Plan For Your Budget

    An insurance policy is a great way to secure your family's financial future, but you also need to consider how it impacts your finances. If you're looking for an insurance payment plan that gives you the most value for your money, consult Wesley LLC! We'll answer all your questions about payment options and help find the best insurance plan for you.

    Written By Cameron McDowell
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