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There are several options available for paying your life insurance premium. To see it advertised you would think that the only options are monthly.

Of course the reason for advertising monthly rates is well known. Giving a potential customer sticker shock by making them think they might have to pay $240 for term insurance all in one whack is a no brainer when you can keep them focused by saying $20 a month, or even the famous pennies a day approach.

But let’s talk options because they are in fact very important. Being a graduate of the Dave Ramsey Financial Peace University (remember Dave’s Town Hall next week), I can tell you that budget is everything in your financial life. If it’s not budgeted and comfortably so, there is a point when something else will get in the way and you won’t pay that life insurance bill. Lapsed life insurance isn’t going to help your family if something happens.

Even though annually, once a year, is the least expensive way to pay for your life insurance, getting a large bill once a year at least in my world throws everything off. The other options are semi annually, quarterly and monthly. Generally the only way you can pay monthly is by automatic bank draft. All of the options other than annually incur something of a surcharge or, as the companies like to put it, the annual premium is actually a reduced option.

To put this in perspective let’s assume your life insurance annual premium with Prudential is $1000. Each company has a factor for determining the different payment modes. With Prudential if you want to pay semi annually that factor is .52, or $520 every six months, $1040 a year. If you want to pay quarterly their factor is .265, or $265 every three months, $1060 a year. If you want to pay monthly their factor is .09, or $90 per month, $1080 per year.

For those who are more concerned with interest lost versus ease of budgeting they often pick annually. As for me, the ease of the monthly bank draft and the peace of mind of knowing that I’m not going to accidentally lapse something, is worth the additional charge.

Bottom line. Make sure the total cost of your life insurance is affordable and make sure you budget your payments so that you can maintain the valuable coverage.