Short answer
Life insurance premiums can usually be paid monthly, quarterly, semi-annually or annually by bank draft, card, check or online, and annual payment is the cheapest because insurers add fees to installments. Permanent policies may also let dividends or cash value cover premiums. Most policies include a grace period of about 30 days before a missed payment causes a lapse.
Key takeaways
- You can usually pay monthly, quarterly, twice a year or once a year.
- Annual payments often cost less over a year than monthly payments.
- Some permanent policies let you finish paying after a set number of years or by a set age.
- Dividends, cash value or flexible premiums may help cover your payments.
- Beneficiaries can often choose a lump sum or a series of payments.
How often you can pay
The schedule you choose for paying premiums is called your payment mode. Most insurers offer a few choices, though not every policy offers all of them. Many insurers charge a little more in total when you pay more often, because of added billing costs. Ask your insurer for the yearly total under each mode before you choose.
- Annual, with one payment each year
- Semiannual, with two payments each year
- Quarterly, with four payments each year
- Monthly, often required to be paid by automatic bank draft
Ways to send your payment
Insurers accept payments in several ways, and the choices vary by company. Some take debit or credit cards, while others do not. Automatic payments help you avoid a missed premium and a possible lapse. If you pay by mail, send your payment early and keep a record of the date. Common methods include the following.
- Automatic bank draft, sometimes called electronic funds transfer
- Online payment through your insurer's website or app
- Payment by phone
- A check mailed with your premium notice
- Payroll deduction for coverage through your job
How long you pay on permanent policies
With term life, you usually pay for the length of the term. Permanent policies can offer more choices. The shorter the payment period, the higher each payment tends to be. A shorter period can help if you want the policy paid up before you retire. The schedule is usually set when the policy is issued, so check your policy to see which one you have.
- Lifetime pay, where premiums continue for life or until a very advanced age
- Limited pay, where you finish paying after a set number of years, such as 10 or 20
- Paid up at a set age, such as 65
- Single premium, where one large payment funds the policy, which can change how loans and withdrawals are taxed
When your policy can help pay the premium
Some permanent policies have built-in ways to help with premiums. If you own participating whole life, you may be able to apply dividends to your premium, though dividends are not guaranteed. If your policy has an automatic premium loan feature, the insurer can take out a loan against your cash value to pay a premium you miss. That loan charges interest and reduces the death benefit until you repay it.
Universal life works differently. You can often pay more or less within limits set by the policy. Paying only the minimum can leave too little cash value to cover rising costs later. An independent licensed agent can review your policy at no cost and show you how your payment choice affects how long your coverage will last.
How the death benefit can be paid out
Payment options also cover how the insurer pays your beneficiaries, which your policy may call settlement options. As the owner, you can sometimes choose one in advance, or you can leave the choice to each beneficiary. The death benefit is generally free of federal income tax. Interest earned on money the insurer holds is usually taxable. Common choices include these.
- A lump sum paid all at once
- Installments over a set number of years or in set amounts
- Income for the rest of the beneficiary's life
- An interest-only option, where the insurer holds the money and pays interest
- An account the insurer manages that the beneficiary can draw from
Frequently asked questions
Can I change how often I pay my life insurance premium?
Usually, yes. Most insurers let you switch between monthly, quarterly, semiannual and annual payments. The change may take effect on your next due date or your policy anniversary. You may need to fill out a form or set up a bank draft. Ask how the change will affect your total yearly cost.
Can I pay my life insurance premium with a credit card?
Some insurers accept credit or debit cards, often online or by phone. Others accept only bank drafts or checks, or allow cards only for certain payments. Check your insurer's website or call customer service to find out. If you use a card, make sure the payment goes through before your grace period ends.
What happens if I miss a life insurance payment?
Most policies give you a grace period, usually 30 or 31 days, to pay without losing coverage. If you have not paid by the end of the grace period, the policy can lapse. Some permanent policies may cover the premium from cash value. If your policy does lapse, you may be able to apply for reinstatement.
Can someone else pay my life insurance premium?
In most cases, yes. A family member or friend can usually pay the premium for you. Paying the bill does not give them any control over the policy, because only the owner can make changes. If someone is helping you pay, ask your insurer whether that person can also receive copies of billing or lapse notices.
Do beneficiaries pay taxes on life insurance payouts?
In most cases, beneficiaries do not owe federal income tax on the death benefit. Interest is a different story. If the insurer holds the money and pays interest, or pays the benefit in installments, the interest portion is usually taxable. Large estates may also face estate taxes. A tax professional can explain how the rules apply to you.
Related guides
- Ways to Lower Your Life Insurance Premium
- How to Reinstate a Lapsed Life Insurance Policy
- How Life Insurance Cash Value Works
Have a policy with a specific company? Find your carrier for help with that policy.