Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An insured wants to pay premiums more frequently than annually on a whole life policy. Compared with paying annually, the total annual cost of paying monthly is generally:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Insurers add modal loadings, or service fees, when premiums are paid more often than once a year, because each installment involves extra administrative and billing costs and the insurer forgoes the use of the full premium for the year. As a result, paying semi-annually, quarterly, or monthly costs more in total than paying annually, making the annual premium the least expensive mode. The differences are planned and disclosed in the premium schedule, not tied to mortality experience or investment returns.
Why the other options are wrong
- B) The modes are not actuarially neutral; loadings make more frequent payment plans more expensive in total.
- C) The policy's cash value grows from policy credits, but the premium itself is not cheaper; the insurer charges extra for installment billing.
- D) The difference between modes is fixed by the insurer's loading schedule, not unpredictable or dependent on mortality tables.
Memory hook
Annual = one price. Monthly = the same pie, sliced with a service fee per slice.