Legal Definitions - single-premium insurance

Single-premium insurance refers to an insurance policy that is fully paid for with a single, upfront lump-sum payment, rather than through a series of regular installments over time. This payment covers the entire duration or value of the policy from its inception. While it can apply to various types of insurance products, it is most commonly associated with life insurance or annuities, providing immediate coverage or benefit activation.

• Example 1 (Life Insurance): An individual in their late 60s, having recently sold a property, wishes to ensure their two grandchildren each receive a specific inheritance amount upon their passing, without the complexities of probate. They decide to purchase a single-premium life insurance policy, paying a substantial lump sum to the insurance company. This one-time payment immediately activates the policy, guaranteeing a death benefit that will be distributed to their grandchildren as beneficiaries.

  Explanation: This illustrates single-premium insurance because the entire cost of the life insurance policy, which provides a future death benefit, is covered by one large payment made at the beginning, rather than ongoing monthly or annual premiums.

• Example 2 (Annuity): A recent lottery winner, looking to secure a portion of their winnings for a guaranteed income stream in retirement, decides to invest a significant sum into a single-premium immediate annuity. They make one large payment to the insurance company, and in return, the company begins making regular, fixed payments back to them starting almost immediately, providing a predictable source of income for a set period or for life.

  Explanation: Here, the annuity, which provides a future income stream, is funded entirely by a single, upfront payment. The "single-premium" aspect means no further payments are required from the lottery winner after the initial lump sum.

• Example 3 (Long-Term Care Insurance): A financially prudent couple in their 50s wants to proactively address potential future long-term care needs without the burden of ongoing premium payments during retirement. They choose to purchase a single-premium long-term care insurance policy, making one substantial payment to secure coverage for services like nursing home care or in-home assistance should they need it later in life.

  Explanation: This example demonstrates single-premium insurance because the couple pays the full cost of their long-term care coverage in one lump sum. This single payment ensures their policy is fully funded and active, providing peace of mind without recurring premium obligations.