When we pay our premiums, we will all encounter the choice of whether to pay it all at once, or to pay it over ten years or twenty or thirty years. So what are the differences and pros and cons of each payment cycle?
Pay attention to the choice of payment period
Except for short-term insurance that cannot choose the payment period, such as medical insurance, accident insurance, etc., critical illness, life insurance, and most investment insurance types can choose the payment period.
If you have a mental calculation of the single payment (one-time payment) and the cumulative premium paid in ten or twenty years for any product, the cumulative premium of the latter is much higher than the former (single payment). If you can calculate the internal rate of return (IRR), you will find that the longer the payment period, the higher the IRR, which is much higher than the return of investment products with stable income currently available in the market.
Then the question is, if we have to pay such a high capital cost, is it the most cost-effective to pay in bulk? In some cases the answer is yes, but not necessarily all.
For investment-type annuities or investment-linked products, if you have a spare cash, the efficiency of single payment is the highest. In addition to the lowest cost mentioned above, single payment can put the invested funds into the investment account as soon as possible to generate income, and the cash value of the account will be relatively high in the early stage.
But if you rely on annual income to invest in the future, you can only choose regular payment. The risk of regular payment is that if something unexpected happens in the middle of the payment cycle of several decades and you are unable to pay the payment again, the overall investment will suffer a great loss. Of course, for this kind of accident, it can be offset by purchasing additional exemption insurance, but this part of the investment also reduces the overall investment rate of return.
Therefore, for investment insurance products, if you can pay as soon as possible, you should pay as soon as possible.
If it is critical illness or life insurance, then the uncertainty is very high. Choosing a short-term or long-term payment cycle is basically based on feeling or betting.
If there is no insurance accident during the payment period, then we know that the shorter the payment period, the more cost-effective. But who will know when an insurance accident will happen? The longer the payment period as possible, the less the annual payment will be. When an insurance accident occurs, the accumulated premium will be less than the short-term payment period, which will be more cost-effective and the leverage will be stronger. When
understands these concepts, when buying insurance, it is easy to make appropriate arrangements according to their own specific conditions.
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