Massachusetts State Life Insurance Practice Exam

Increasing the frequency of premium payments generally leads to higher premiums. This phenomenon occurs because insurance companies often charge more for the convenience of allowing policyholders to pay their premiums more frequently. With more payment transactions, the insurer faces increased administrative costs and potentially greater risk of lapses due to missed payments. As a result, when someone opts for monthly or quarterly payments instead of an annual payment, they may be charged a slightly higher total premium over the year.

In contrast, choosing to pay premiums annually usually results in a lower total premium cost because it reduces the insurer’s administrative burden and risk of policyholder default. Thus, while it might seem intuitively that greater frequency would lower the overall cost due to regularity, the opposite is often true in the context of life insurance premium payments.