It may sound familiar or similar, but there are major differences between a single premium and a regular premium. One of the most notable ones is that a single premium are one-off risk payments that an insurer gets for covering continuous risks over a period of time. A regular premium, however, gives insurers ever lasting income streams in return for covering the risk. In other words, a single premium gets paid off by one large sum investment payment instead of having to make periodic payments over the course of many years. So let’s look at the advantages of having a single premium versus having a regular premium plan:
1. There are multiple effects. You can buy a much larger cash benefit that will be left to your estate, children, or charity of your choice.
2. Your policy may grow a cash value much higher and quicker than that of a traditional premium rate. This means you can grow an asset that is useful even while you are still alive.
3. You can get life settlements to help you with your needs. A life settlement company can help pay for your death benefits, which is usually much larger than the actual premiums that have been paid.
While there are some pros to having single premiums instead of regular premiums, there are also cons and disadvantages to consider:
1. You will need a large lump sum of money that you do not plan to use in order to fund your new policy. Surrender charges exist if you plan on cashing out early, but you do have the option of repaying the loan and establishing your benefits again.
2. There are some tax disadvantages because the IRS considers these policies to be special contracts.
3. Do not plan on buying a new life insurance policy after choosing a single premium instead of a regular premium.
Always remember that single and regular premiums are different types of products that are not right for everybody. Be sure to carefully consider the fact that single premium investments build up quickly because the policy is fully funded. However, the size of the death benefit will depend on the amount invested and the health, and age of the insured. Under a regular premium plan, you are required to pay interest rates on a continuous monthly basis as per your choice on a certain specific date. Either option may be more flexible with your current budget and needs.