Life insurance confers substantial benefits. Security for beneficiaries, cash value accumulation, and substantial tax advantages – to name a few. Most people are very familiar with these positive aspects and wisely carry coverage on their lives.
Insurance companies are businesses. As such, they must generate sufficient revenue to cover their costs. They must have a little bit left over to meet the wolf at the door each month, too. In exchange for all the wonderful services provided and returns generated, they charge a fee. It’s called a premium.
The most common method of premium payment is on some periodic basis
Premiums are typically paid in monthly, quarterly, or annual installments. The less often a payment is made, the larger a particular installment is. The larger installments still add up to lower overall premium costs for you, however. This is due to the savings insurers enjoy from lower payment and processing costs of less frequent payments.
Another huge benefit of larger premiums is increased yield. Larger sums enable insurers to obtain higher investment returns on premium revenue. Again, they pass this advantage on to insureds through lower overall policy cost.
Single payment premiums are a relatively new phenomenon
As the name implies, only one installment is required. From then on, the policy is essentially on auto-pilot. This large lump sum generates much larger returns than do smaller frequent payments.
For the insured, the benefits of single-premium payments are many. Cash values begin to accumulate immediately on the lump sum. They grow much faster than with small multiple payments stretched over a long period. The returns are also higher than small periodic payments. Insurers pass on their lower premium processing costs to you as well. Although much larger than periodic premiums, the single premium is lower than smaller payments would total over time.
Single premiums also offer a significant tax advantage
Although cash value accumulates much more quickly and substantially than with periodic premiums, they are not taxed. You may also borrow against them without tax liability. Moreover, your heirs do not have to concern themselves with taxes either. In fact, the Tax Reform Act of 1986 spawned single premium life policies as a tax shelter.
Another unique advantage of single premium policies is that death is not the only event that triggers payment of policy benefits. Terminal or critical illness diagnoses will qualify you for policy benefits without having to die for them!
With all its tax, investment, and security benefits, these policies offer singular advantages. Don’t multiply your worries. Take advantage of this once-in-a-lifetime opportunity!