Tennessee Insurance Practice Exam

What premium schedule typically results in the lowest total cost for the policy owner?

1. Monthly

2. Quarterly

3. Semi-annual

4. Annual

The correct answer is: Annual

Choosing an annual premium schedule typically results in the lowest total cost for the policy owner due to several factors. Insurance companies often offer discounts for policyholders who pay their premiums upfront in one single payment rather than in installments. This is because processing additional payments requires more administrative work and incurs extra costs for the insurer. Consequently, when policyholders opt for annual payments, they may benefit from lower overall costs and avoid the potential for interest charges that may accumulate with more frequent billing cycles. Additionally, with monthly, quarterly, or semi-annual payment options, policyholders are likely to face convenience fees or service charges, which further increase the total cost of the policy. By paying the premium annually, the policy owner also eliminates the risk of missing payments that could lead to lapses in coverage. Thus, selecting an annual premium schedule is typically the most cost-effective option for those looking to minimize the total amount spent on insurance premiums.