Can I pay life insurance in one payment?
[social_share]Life insurance can be paid for in a number of different ways. The usual method is to pay it over the period that the insurance covers, usually as monthly premiums. This has the effect of spreading the cost over the life of the insurance policy, and payments can be arranged to coincide with the time that the purchaser has money, e.g., when they are paid their salary.
However, this is usually a more expensive way of purchasing life insurance and can often be seen as increasing its cost. It’s generally considerably cheaper to pay the premium in one lump sum at the beginning of the term. The reason for this is that life insurance companies, like most financial service providers, will assign a time value to the money, factoring in the interest cost over the period. In short, the money that is paid in advance will have a higher value to the company than the same amount that is paid in the future.
There will also be issues of administrative costs, such as keeping track of the insurance payments, keeping a record of address changes, and other such overheads. These will be far higher with continuing payments than if the policy is paid in one lump sum. Finally there is the risk that the payments may not be made, requiring the company to track down the payment or cancel the policy. All of these factors mean that life insurance will be cheaper if paid for all at once and in advance.
Most life insurance policies do offer this option, although it’s quite unusual for it to be selected with policies generating larger payouts or which are over a longer term, and therefore the purchaser may have to request it. In many of these cases, it will simply be unaffordable due to the higher cost of such policies. It may be possible to get a discount on the policy’s cost if there is a significant lump sum paid at the beginning, although this varies from provider to provider.
If the policy’s price is a small amount, for example, if it’s an annual life insurance policy or if it’s small and only covers funeral costs, then the lump sum is more commonly paid at the beginning of the term.
