Why Do Older People Buy Single Premium Life Policies?
If you have ever bought a life policy in the past, you probably agreed to pay a monthly premium. That is not always the case. Sometimes premiums are paid weekly, monthly, quarterly, or yearly. But a monthly premium is a very common way to schedule payments. There is one type policy, called single premium whole life, which is different. In this case, the whole policy is funded by one lump sum premium at the start of the policy.
Why do people fund their policies this way? Since the policy has already been paid for, the entire face value of the policy is already in place. No more payments ever have to be made. This would be a simple way to make sure an estate was taken care of.
For example, an older person may put $15,000 into their policy. As soon as he or she does that, he could have the plan set up so it would leave $50,000 to an heir. The policy benefciary could be a child, grandchild, spouse, or a favorite charity.
Understand that the numbers I used are just an example. The exact amount of the policy death benefit, and the money you would need to fund that face value, will be different for different people. If you are interested, you can get single premium life insurance quotes to compare how the numbers would work out for you.
This is not the whole reason people purchase these policies of course. Of course, most life insurance policies will have an immediate death benefit. And you only need to make smaller monthly payments to get it. Instead of investing $15,000 up front, you could simply pay a fraction of that every month.
These are whole life policies, and so they also accumulate a cash value. This way, the cash value of the policy will already be ready to grow. Many of these policies grow as determined by some fixed interest rate or market index. So a person can fund their policy with one lump sum, and the very next month they should start to see the cash value of the policy increase. You will have to check into any individual policy to see how that works, and of course you have to remember that you are also paying for insurance.
If you have some money, and you want to make sure you have life insurance and a cash account, this may be a good idea.It is not the right answer for everybody though. You may be more interested in term life or a final expense insurance rate comparison to find the right policy for you.