Do you know that you could save on your premiums by choosing to pay for your insurance on an annual basis instead of monthly instalments? We share the hidden costs of choosing to pay for your premiums monthly and share reasons why monthly payments may cost more.
Illustrated premiums for monthly vs annual payments:
|
Singlife Elite Term II |
Manulife LifeReady Plus II |
TM Early Cover |
|
|
Monthly Premiums |
$42.20 |
$650.17 |
$194.65 |
|
Amount payable a year for monthly premiums |
$506.40 |
$7,802.04 |
$2,335.80 |
|
Annual premiums |
$494.20 |
$7,575.14 |
$2,250.00 |
|
Difference ($) |
$12.20 |
$226.90 |
$85.80 |
Profile: For an age 30 (date of birth: 1 January 1995), non-smoker male. Premiums generated on 7 October 2025 and are for illustration purposes only.
1. Administrative and processing costs
As insurance companies incur administrative and processing costs each time a payment is made, the costs will naturally increase when twelve separate payments are made and processed instead of a single annual payment. To cover these additional expenses, insurers then pass these costs to you via a loading fee on monthly, quarterly or half-yearly payment modes. This loading fee then results in higher total premiums required for monthly payments as compared to annual payments.
While the exact amount will vary across insurers, you may expect to pay a difference between 2.5% to 5% should you choose to pay monthly instead of annually. Note that this difference in premium is generally unaffected by factors such as the addition of riders, changes to coverage or premium payment term, smoking status, age, gender, or product types within the same insurer.
Difference in premiums payable for monthly vs annual payment:
|
Insurer S |
Insurer M |
Insurer C |
Insurer T |
Insurer I |
Insurer E |
|
Approximately 2.5% |
Approximately 3% |
Approximately 3.81% |
Approximately 3.8% |
Approximately 4% |
Approximately 5% |
Figures generated on 7 October 2025 and are for illustration purposes only.
2. Cost of financing
When you choose to pay your premium monthly, the insurance company is essentially lending you the full annual cost of your policy and allowing you to “pay in instalments” over the year. This flexibility comes with an added cost just like how retail instalment plans often charge more as compared to a one-off payment. The extra amount charged for monthly payments reflects the insurer’s implied financing rate.
As the insurer is financing your premiums for you throughout the year, this additional cost compensates them for the delay in receiving the full premium upfront and represents the implicit cost of spreading your payments over the year. This implied financing rate could range from approximately 4.5% to 9.5%.
Note: Do not confuse this with the distribution cost incurred as the percentage of your premiums that goes towards your distribution cost remains the same whether you choose to pay annually or monthly.
For illustration purposes only
3. Cash flow
When you pay your insurance premiums annually, you are providing the insurance company with the full year’s payment upfront, giving them immediate access to use these funds to generate returns. When monthly premiums are chosen, the insurance company receive smaller amounts and limits their ability to invest the full sum earlier. This creates an opportunity cost to the insurance company with a loss of potential investment income.
With monthly premiums, there is also a higher chance that the policyholder may miss a payment or lapse the policy. Insurance companies may also factor this risk into their pricing for non-annual payment modes thus resulting in higher premiums required when you choose to pay monthly, quarterly or half-yearly.
Should I choose to pay for my insurance on a monthly or annual basis?
- Choose to pay monthly if,
If cashflow is a concern to you, then monthly payments may still be preferable. Weigh the pros and cons between cost savings and affordability to determine which option may be more suitable for you.
However, we do not recommend choosing monthly payments for saving plans. This is because the maturity value remains the same regardless of premium payment frequency. With monthly payments incurring a higher total cost, this reduces your net returns and results in a lower overall yield from the savings plan.
- Choose annual premiums if,
You would like to save more on your premiums and would like to avoid paying the insurer a financing cost. Choosing to pay annually also reduces your risk of a missed payment and policy lapse and may be easier for you to administer as you would not need to actively monitor multiple monthly deductions throughout the year. Take a quick look at your existing policies — you might be surprised at how much you can save just by switching your payment frequency from monthly to annual.
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Available Products on FSMOne Insurance |
|
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment, General Insurance (Personal and Commercial) from AIA, AIG, Allianz, China Taiping, Cigna, Chubb, Etiqa Insurance, FWD Insurance, Great Eastern, Henner, Income, Manulife, MSIG, Raffles Health Insurance, Singlife, Sompo, Tokio Marine, and QBE. *Please check with our team if the product you want is available on FSMOne Insurance |
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