Purchasing Life Insurance: Lump Sum or Monthly Premiums?
The payment method you choose when purchasing life insurance can have a big impact on the value of your policy. You may choose a lump sum life insurance premium or to make regular premium payments. So which is right for you? Let’s take a closer look.
The Lump Sum Life Insurance Premium
A lump sum life insurance payment plan is also known as single-premium or one-time payment. A lump sum life insurance premium plan can mean a larger death benefit because life insurance companies use your premiums to fund investments that will pay for your death benefits. For a life insurance company, a larger initial cash investment means that they have more money to invest -- hence more money to be gained in investments and larger payouts for beneficiaries. The payout will of course vary according to the amount paid in as well as the age and health of the insured.
The Monthly Life Insurance Premium
Monthly life insurance premium plans have smaller initial cash investments, meaning profits will take longer to accumulate. Life insurance companies may charge high monthly premiums for older customers because their remaining life expectancy is shorter so, a single-premium life insurance plan may make more sense. However, a monthly premium may be a better fit for someone younger since they will likely have a longer lifetime investment period compared to a 65-year-old man.
Selecting Your Payment Method
Let’s take a look at an example. A 65-year-old woman may have to make large premium payments of $1000 a month for a fairly moderate payout. An older person can eliminate this with a large one-time lump sum payment. This same woman may be able to invest in a $30,000 lump sum payment to ensure her beneficiaries will receive a $60,000 death benefit that is income-tax free. On the other hand a monthly premium life insurance payment plan will likely work for a younger person because their payments are invested over time.
A top-notch life insurance agent can explain the benefits of both types of life insurance premiums. At Efinancial, we have a staff of highly qualified insurance agents available to help you select the right policy to fit your needs. To start the process, complete the quote request form. Your Efinancial agent will then contact you to explain your options and answer your questions. With no obligation to buy, why not start the process today?
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