According to the 2020 Insurance Barometer Study conducted by LIMRA, 54% of people in the U.S. are covered by some form of life insurance. These individuals have to work through the different payment plans available for their life insurance policies to ensure their claims are valid.
So, what are the most important things they take care of?
Some of the most important things to know about insurance payment plans include the different options available per type of insurance, the different media you can use to make your payments, and any perks such as discounts available with certain payment plans.
Let’s break this down further.
Payment Plans for Different Types of Insurance
There are different types of insurance, with four of them being the most recommended by financial experts. These include life insurance, auto insurance, health insurance, and long-term disability insurance.
Life insurance takes care of your survivors after your death.
Long-term disability protects you and your loved ones in case of an unexpected loss of income.
Health insurance protects you from financially damaging bills in case of a serious illness or injury.
Finally, auto insurance protects you from the financial burden of an expensive car accident.
These four forms of insurance often come with different payment plans, albeit with some similarities. These include:
Payment in Full
The payment in full option allows you to pay for the full premium once by the effective date and avoid any monthly or quarterly installments and their associated charges.
Some insurance companies also offer great discounts with the payment in full option. That further drives down the total cost of the insurance compared to completing monthly payments within a specified period.
Unlike installments, you can hardly suffer from late payments using the payments in full option. Most companies require you to complete the entire bill by the effective date of the insurance policy so that you spend the rest of the time only filing claims when necessary.
You’ll only be required to make another payment once the current policy expires.
In other cases, you might be mandated to pay for the premium in full if you defaulted on a previous policy.
Make sure you consult with your insurance provider first to know whether you’re required or can pay for the insurance policy in full and the exclusive benefits of doing so.
This is the most common payment plan for most insurance policies. Term payments happen over a set quota such as monthly, quarterly, or semi-annually and are charged at the set frequency.
Term payments allow the policyholder to break down the entire cost of the premium into manageable installments. This makes the premiums more affordable since very few people can afford to foot the entire bill at once.
Term payments also come with immense flexibility since you can discontinue the insurance plan because of different circumstances, such as increased financial liabilities.
The downside with this plan is that you pay expensive installment fees and risk losing the insurance policy if you default on payments.
Whether you are paying for your policy in full or term payments, there are different payment methods available with most companies. These include:
The auto-payment method is best when you don’t want to risk forgetting the due date for every term payment and getting your policy canceled. Most banks offer insurance auto payment services, where they debit your premium insurance payments directly or through an electronic clearance system (ECS) mandate once the due date arrives.
Most insurers allow for auto payments. You only have to apply for the service with the bank and fill up a mandate form in any of your insurance provider’s branches.
You can also auto-pay for your insurance policy premium using a credit card, debit card, or Electronic Funds Transfer (EFT).
In most cases, there are zero service fees when you use the EFT option, unlike credit and debit card options. There’re also typically no service fees with the bank’s online bill pay option.
Thus, you must understand the applicable fees charged by your bank or credit and debit card provider before opting for auto payments.
The manual payment method leaves you responsible for paying your insurance policy premium on time. The standard options include:
Paying with a credit card over the phone
Paying by check
Using the insurance provider’s app to make the payments
If you forget to make your premium payments on time, you risk having your policy canceled. You can set a reminder on your phone to help you remember to make the payments on time or use any other reminder service for the same.
Financial Assistance Tools
Financial assistance tools help cover the cost of insurance premiums or high deductibles in your insurance policy. A good example is healthcare insurance, where tools such as flexible spending accounts, health savings accounts, and health reimbursement accounts are the most commonly used.
Health Savings Account (HSA)
A health savings account is a great option if you have a high-deductible healthcare insurance plan. This account allows you to pay for qualified out-of-pocket medical expenses and any other expenses you may have before you meet your deductible.
Most HSA accounts receive money from your paycheck automatically pretax. You can keep the HSA even if you change your insurance plan.
Flexible Spending Account (FSA)
A flexible spending account helps foot the bill for health insurance premiums, dependent care, qualified dental, medical, and vision expenses, plus supplies.
Money for an FSA also comes directly from the paycheck pretax. This essentially lowers your taxable income while paying for healthcare with tax-free dollars.
Health Reimbursement Account (HRA)
A health reimbursement account helps you pay for services not covered by your insurance. These include copays, coinsurance, and deductibles.
Employers typically set up HRAs for their employees and put the money in their accounts to cover their healthcare services.
Get the Best Plan for You
Insurance payment plans are quite flexible to cover for the financially able policyholder to one with little financial wiggle room. Before deciding on a plan, take some time and consult an insurance professional on which options will work best for your desired coverage and budget.