Many life insurance policyholders are unaware that they have the option to pay off their life insurance with a one-time payment. This may be a cost-effective option in some circumstances, according to Cincinnati.com.
Paying a single premium sometimes enables policyholders to switch older life insurance and annuities accounts to one with more modern features while avoiding costly taxes, according to the source.
Life insurance can also be used as a financial planning tool when funds are transferred from a less profitable investment account, to pay off the balance owed on the policy, the source suggests. The transfer not only will allow the account to avoid probate, but can also reduce the risk of familial dispute, since it cannot be contested.
Finally, some life insurers offer the opportunity to use the entire death benefit to cover long-term care expenses, but this may only be allowed if the policyholder has made a single premium payment. However, the source warns those who plan to go this route that some policies may become subject to modified endowment contract rules, which could limit potential tax benefits.
Though paying for life insurance with a lump sum may have some benefits, it can be difficult to manage for financially strapped individuals. Term-life insurance policies, which are typically less expensive, may be the most affordable option.