All about single premium life insurance

What is single premium in life insurance?

It’s type of life insurance with a property that the insurer pays the whole premium once at the start of the premium.

The single premium life insurance was a bad practice that carried out some banks that, hiring a mortgage, added this type of policy. It basically consists of the customer paying the insurance premium in one go for all the years of the mortgage. So that such a high amount of money would not be onerous, the entities included it in the total amount of the mortgage loan.

Very advantageous life insurance for the bank

With this type of life insurance , the bank obtained a double or, rather, a triple benefit . It must be taken into account that the policies signed in the banks are almost always more expensive than those contracted through an insurance agent.

And with this is related the first advantage for banks to sell these single premium policies. By doing so, they ensured that the client would not go to another insurer after a year. Something that he would surely do when he saw that they offered him lower prices.

Another advantage of single premium insurance for banks had to do with collateral. By doing so, they ensured that clients would have life insurance for the entire duration of the mortgage. This ensured that they would always get the money they borrowed back.

But there was still a third benefit for banks. By including this one-time premium in the mortgage, they also earned interest on it . As an example, a client takes out a mortgage for 20 years. As for the amount, it is 80,000 $. The bank manages to contract a single premium insurance that amounts to 8,000, but the entity includes everything in the loan, giving a total debt of 88,000 euros. Logically, the interest that the bank obtains on this last amount is higher than if it were 80,000. And, furthermore, for 20 years.

So single premium insurance was a great business for banks. But very bad for customers , who paid much more money than if they had taken out regular premium life insurance .

Take out life insurance: much better annual premium

It could be said that taking out an annual premium life insurance brings all the advantages to the client . Unlike the previous one, you only commit to this one for 12 months and after that period you can change it to another company. Logically, you must notify the previous insurer with the legal notice of two months.

In this sense, the policyholder is free to search for the policy that interests him the most each year . But also, in terms of the mortgage, the instalments will be much cheaper and you will pay less interest .

Continuing with the previous example, the client has taken out the mortgage but not the insurance. You look for a policy on your own and it pays you annually, for example, 300 euros. Multiplying this amount by 20 years, it would be 6,000 euros. You will have saved 2,000 and, in addition, the interest of the 8,000 euros of the single premium that the bank had included in the mortgage loan.

Also Read :Decreasing Term Life Insurance

But, in addition, each year you will be free to renegotiate or change your insurance to another company with a cheaper premium. This will be easy because, as the mortgage is lowered, the principal of the policy will also be lower. Consequently, the same will happen with the premium.

In conclusion, single premium life insurance was bad practice by some banks. that, with this, they obtained good benefits. However, for the customer they were detrimental. This always has many more advantages hiring them with a periodic premium . If you are looking for life insurance, go ahead and always take out one with an annual premium.