Let the monthly premium earn something for you. Do not shell out from your pocket the full annual premium for life insurance.

In respect of life insurance, there are different options to pay the premium on monthly, quarterly, half yearly and annual basis.  Any option short of a year would attract certain additional amount loaded to the premium, depending upon the periodicity. (For example, if you opt to pay the premium monthly, a 5% will be loaded to the premium amount).

Avail the discounts called ‘mode rebate’ when you pay annually or half yearly.

Enjoy additional premium discount for large sum assured.

These discounts are offered by the insurance companies as a matter of your right. 

But, when you adopt the following method, you generate some passive income internally, out of the premium payable.

First, ascertain the sum assured, term and table, which will lead you to determine the amount of premium to be paid.  Prefer it to be paid annually, to enjoy mode rebate.

One month before taking up a life insurance policy, a recurring deposit, yielding interest at the rate of say 10% p.a. with the monthly installment equal to 7.75 % of the annual premium should be made with your banker or post office for a period of 12 months.  Alternatively, you may always avail the grace period. (It is one month for quarterly, half-yearly and yearly premiums.) This means that you need not start the recurring deposit account one month before having the insurance but just on the day of starting the insurance.

For a recurring deposit of Rs.1000 per month, the interest yield will be about Rs.780.  So, we get this as a benefit and only the balance of the annual premium has to be met out. So, the entire funds for the premia have been arranged in an easy way, through your planned savings plus interest thereon.  Thus, there will be a savings of about 8% in respect of the premium paid.  Of course, the first year premium has to be paid in cash, annually. 

Still further planning, if you intend taking insurance coverage next year, plan now itself for a monthly deposit account, whose maturity has to coincide with the date on which you want to start the insurance.

Employees covered under Salary Savings Schemes (SSS) may instead of allowing their employer company to deduct the premium from their monthly salary and pay the total premium directly to the insurance company on a monthly basis, arrange for salary deduction and credit to some bank for a recurring deposit account and from the latter the premium could be paid to the insurance company on due date, on an annual basis. If the employer is not willing to do the latter option, you yourself may open a recurring deposit account and give standing instruction for transferring funds to this account from your savings bank account.  In the initial year, when you decide switching over from monthly to annual mode, there will be a double burden as to meeting the current monthly premium as well the monthly savings for the proposed annual premium.  From the next year onwards, there will be only a single savings.

Also, other persons transferring the monthly premium, for some reasons or the other, may also opt the above method of making recurring deposits and meeting the premium on the due date out of the proceeds of the recurring deposits. Standing instructions may be given to your bankers, accordingly.  For these kinds of persons, there is an additional savings of 5% of the premium, which is loaded for monthly premium accounts.

So, go for annual premium only, earn on the same and shell out only lesser amount of premium.