Annual life insurance policies
[social_share]Some of the cheapest seeming life insurance policies are the ones sold annually. These annual life insurance policies are not as cheap as they first appear, although they can be useful. It’s a good idea to understand what these policies are, how they can be used, and when they should be avoided.
Annual life insurance policies are written anew every year. They may be written by the same provider (or provided through the same broker or employer, who may use different providers) but the risks are recalculated each year.
Calculating a life insurance policy on an annual basis means that the premiums change on an annual basis. Most standard life insurance policies are calculated and written over a longer period, with the premium remaining the same throughout that term.
These differences mean two things. Firstly, on a direct, month-to-month comparison, the premiums for annual life insurance policies are significantly lower than those for standard, longer term policies, at least at first.
This is because longer term life insurance policies don’t just cover the person at the age they originally purchased it, but also at a later age. Because insurance risks rise as people grow older, averaging the cost of a long-term policy over those years means the long-term insurance premium at the time of purchase is generally far higher than that for an annual policy purchased by the same person at the same time.
This doesn’t mean that annual life insurance is in fact cheaper, as the second fact alluded to above is that annual insurance premiums are repriced and so change every year. As the policy holder ages, their premiums get higher. In general, then, this tends to mean that life insurance taken out over a longer term is actually lower over that term than if a string of annual policies were purchased over the same stretch of time.
Employer-offered coverage tends to be annual life insurance, which is one of the reasons such policies can be so cheap. There are a number of other reasons, particularly that the employees form a group – so cutting down on the need for medical tests – and the company usually has a bulk-buying advantage.
