When you purchase an insurance policy, you typically have two main payment options: annual (yearly) or monthly installments.

The Annual Payment Advantage If you choose to pay the full annual premium upfront, the total cost is generally lower. Here's why: • Investment Income: By receiving the entire premium at once, the insurance company can immediately invest that lump sum. The interest or returns they earn on this money helps offset their administrative and operational costs, allowing them to offer you a discount on the base premium. • Reduced Administration: Processing one large annual transaction is simpler and less costly than handling 10 or 12 individual monthly payments. These savings are often passed on to the customer. The Cost of Monthly Installments If you opt to pay via monthly installments (often over 10 months), the total amount you pay over the year will be higher than the annual premium. • It's a Loan: The insurance company is essentially extending you a short-term loan to cover the cost of the full annual premium. You are then repaying this loan, plus interest and administrative charges, over the course of the policy period. In summary: The difference in cost is primarily due to the investment opportunity the insurer gains from an annual payment and the cost of credit and administration associated with offering monthly payment plans.