Washington Life Producer Practice Exam

Which premium payment mode is most expensive over the course of a year?

1. Quarterly

2. Annually

3. Monthly

4. Semi-annually

The correct answer is: Monthly

The monthly premium payment mode is considered the most expensive option over the course of a year due to the way insurance companies typically structure their pricing. Insurers often charge higher premiums for more frequent payment schedules because they face increased administrative costs and cash flow risks associated with the billing and collection processes. When you pay premiums on a monthly basis, providers generally factor in these additional costs, which leads to a higher overall amount paid throughout the year compared to other payment modes such as annually, semi-annually, or quarterly. Annual payments are usually the most economical choice because they minimize administrative tasks and payment processing, allowing for savings that can be passed on to the policyholder. By choosing monthly payments, consumers may encounter a higher total premium expense as spread-out payments can accumulate additional charges. Thus, the monthly payment mode ultimately results in the highest costs over time when compared to other payment frequency options.