Is there any advantage to pay one shot for all your insurance premiums i.e. single premium? For those with the money there may be certain benefits…
There are several types of single premium products, so called because clients only pay one lump sum premium.
Single Premium “Traditional” Endowment policies
Single Premium Investment-linked Endowment policies
Single Premium Whole Life or Term policies
Single Premium “Traditional" Endowment Policy
These popular and relatively short-term policies (about 4 to 10 years) usually yield an annual return that beats the fixed deposits (and bond coupon rates at times). The guaranteed return is lower and clients must take care to go for companies with good track record of meeting the non-guaranteed bonuses.
The insurance protection varies but is usually from 1 per cent to 50 per cent more than the premium.
Singe Premium Investment-linked Endowment Policy
The premiums are invested in the insurer’s clutch of funds, and the risks of gains or losses are borne by the client.
The insurance protection can range from zero upwards, depending on the client’s choice of funds. Clients can choose to vary the proportion of protection and investment.
Single Premium Whole Life or Term Policy
These are similar to the regular premium policies except that the premiums are paid in one lump sum. Few companies offer this.
The advantage is that the policy is completely paid, and is suitable for those who have large sums of money and want to “settle” their insurance protection needs in one shot.Financial Planning Viewpoint
Single premium endowment is one of the investment options for clients with savings and protection as well. It is not as liquid as a savings account, but usually gives a higher return. It is not purchased for protection, but the protection element may prove useful in times of claims.
The investment-linked type should be evaluated against unit trust. There are pros and cons but generally, unit trust offers more options and is more transparent.
Single premium policies can serve as gifts. Rich parents or grandparents, or uncles and aunts, can make such gifts to their loved ones.
Single premium policies are especially suitable for Supplementary Retirement Scheme. Each year’s contribution is used to purchase a policy and the maturity date can be staggered from age 62 to 72, to take advantage of the ten-year withdrawal period for SRS accounts.
Clients are also able to use their savings in CPF Ordinary Account (OA) and Special Account (SA) to purchase single premium endowment, but must be careful to obtain better returns than the 2.5 per cent and 4 per cent respectively from OA and SA.
Conservative and moderately conservative clients would be attracted to single premium policies more than the higher risk-takers.