No Medical life insurance - life insurance modal factors
If you look through a term life brochure, you're likely to see the term modal factor.
It's one of those life insurance terms that is perplexing and sounds like it comes from a science fiction movie.
Let's take a quick look at modal factors.
Depending on the life insurance company, you typically have various options on how you can pay your life insurance premium and we're not just talking about auto-deduction, credit card, or standard billing.
You also have options on how often during a year you will pay your premium.
You may have options to pay the premium over shorter durations such as monthly, quarterly, bi-annually, etc.
This is what dictates the modal factor.
The modal factor is usually a percentage.
For example, it may look something like this:
This essentially means that you will pay more per year if you pay at a smaller installment than annually.
Let's take an example.
Let's say your annual premium is $1000 (to make it easy).
If you choose to pay semi-annually (every 6 months), then we would apply 51% of the $1000 annual charge.
This means you are paying a total of $1020 for the year for an additional premium of $20.
This modal factor is essentially a 2% penalty for paying twice a year instead of annually.
The penalty goes up for shorter durations.
Taking our same example of $1000 annual premium, if we pay quarterly, then we would pay a 4% penalty (26%+26%+26%+26%).
The penalty for monthly is steeper.
If we multiply the .0875 modal factor by 12, it amounts to a 5% extra premium.
That means, we are paying $1050 versus the annual premium of $1000.
Of course these shorter durations are not only easier on the pocketbook but can be more convenient when paid with automatic withdrawals or credit card debits.
You can run your quote here:
Keep in mind that life insurance is a pre-paid policy which means you are paying now for the next year (or quarter or 6 month depending on payment schedule).
A big part of how a life insurance company functions is to take the premium now and invest part of it to offset future claim payments.
For example, if you pay $1000 up front, the carrier can invest part of this to make an additional 4% conservative.
If you pay twice a year, the carrier can only invest $500 for the first 6 months.
To offset the 6 months investment income on the second payment, they charge you the modal factor.
The monthly payment cycle means that they can only invest 1/12th of the premium amount for the first months and 2/12ths in month 2 etc.
This figures into the 5% penalty in our example above.
Ultimately, it's up to you and your comfort level.
You need to weigh this savings versus the convenience and budgeting ease of paying smaller amounts more frequently.
Again, there is absolutely no cost to you for our services. Call 800-710-0455 Today!
20+ Years EXPERIENCE
"No Thank you. You've been so helpful time and time again!"
"Thank you SO SO much for all your help. I have to be honest, this insurance stuff was making me so nervous. Thank you again for your assurance"
"Anyway, I hope you got some time off this past week! Thank you again for your help and efforts on my behalf! I was very lucky to find you."
"Thank you so much! Very happy with service. If there is any way I can contact supervisors to let them know about your great service let me know"
"Yay! Thank you so much. YOu guys most definitely made it so much easier!"
"You are awesome... takes a huge worry off my back, thank you for your kind. thanks for your time and kindness. !!"
"Wow, I can't thank you guys enough for your help...I couldn't imagine trying to tackle this on my own!"
"Thank you so much for your marvelous work. Can't tell you how much I appreciated you taking care of this. You are simply the best!"