Primerica Life Producer Practice Test

Which premium payment mode usually incurs the lowest overall costs?

1. Monthly

2. Quarterly

3. Semi-annual

4. Annual

The correct answer is: Annual

Choosing the annual premium payment mode typically incurs the lowest overall costs compared to the other modes. This is primarily due to the way insurance companies structure their pricing for different payment frequencies. When a policyholder opts to pay annually, they usually avoid the additional administrative fees and finance charges that come with more frequent payment options like monthly, quarterly, or semi-annual payments. Insurance companies prefer annual payments because it minimizes the risk of late payments and reduces the administrative burden associated with billing and collection for multiple smaller payments throughout the year. Consequently, many insurers offer a discount or lower base rate for policies that are paid annually, making this option the most cost-effective for policyholders in the long run. This financial incentive encourages policyholders to select the annual payment mode to reduce the total premium expenditure over time while maintaining their insurance coverage.