Modes of premium payment

What "mode" means

The premium mode is how often the policyowner pays the premium: annually, semiannually (twice a year), quarterly (four times a year) or monthly. A few older or small "industrial" policies were written with weekly premiums. The mode is chosen on the application and printed in the policy.

Do not confuse the mode with the method of payment. The mode is the frequency; the method is how the money moves, such as a check, a card, or an automatic bank draft.

Paying more often costs more in total

The policy is priced as an annual premium. When the owner chooses a more frequent mode, the insurer applies a modal factor (a small percentage loading) to each installment, so the total paid over a year goes up:

The insurer has more bills to send and more payments to process, which adds expense.
The insurer receives the money later, so it loses investment earnings it would have made

on a full annual payment collected up front.

Every extra due date is another chance for the owner to **miss a payment and let the policy

lapse**.

So annual is the cheapest mode in total, and monthly is the most expensive, with semiannual and quarterly in between. A policy with an annual premium of $1,200 might cost something like $105 a month, which adds up to $1,260 a year. The exact modal factors are set by each insurer.

A bar chart titled 'Same policy, total paid in one year', using an illustrative policy with an annual premium of 1,200 dollars. There are four bars, left to right, each taller than the one before. Annual: one payment of 1,200 dollars, totaling 1,200 dollars, the shortest bar. Semiannual: two payments of 612 dollars, totaling 1,224 dollars. Quarterly: four payments of 309 dollars, totaling 1,236 dollars. Monthly: twelve payments of 105 dollars, totaling 1,260 dollars, the tallest bar. A note under the chart says more payments per year means a higher total cost, because of the modal factor. A second note gives the grace periods: 7 days for weekly premiums, 10 days for monthly premiums, and 31 days for all other modes. — Annual mode costs least in total; monthly costs most.

Mode and the grace period

The standard grace period provision in individual health policies ties the grace period to the mode: 7 days for weekly-premium policies, 10 days for monthly-premium policies, and 31 days for all others (quarterly, semiannual and annual). Coverage stays in force during the grace period; if the premium is still unpaid when it ends, the policy lapses.

Changing the mode

The owner can usually change the mode later, for example from monthly to annual to save money, typically effective on a premium due date or the policy anniversary. The coverage itself does not change, only the payment schedule and the total annual cost.

Common payment methods

Direct billing: the insurer sends a premium notice and the owner pays it.
Pre-authorized check (PAC) or automatic bank draft: the premium is taken from the owner's

bank account on each due date by electronic funds transfer. This is the usual way monthly mode is paid, and it reduces the chance of a missed payment.

Payroll deduction: the employer withholds the premium from the employee's pay, common

with group and worksite coverage.

Card and other forms: state law lists the forms an insurer may accept, such as cash,

checks, money orders, debit and credit cards, and electronic funds transfers.

In group coverage, the employer usually remits one combined premium for the whole group, most often monthly, even when employees pay their share through payroll deduction.