Varieties of Life Insurance Premium
A life insurance premium is not always a fixed, periodic payment. The way your premium behaves depends on the variety of life insurance you purchase:
Level premium life insurance
The prevailing idea of insurance premiums is the level premium: you pay the same amount for per month or year for the entire lifetime of the policy. Level premium life insurance is the standard for term life insurance and for traditional whole life insurance.
Modified premium whole life insurance
Modified premium life insurance is a variety of whole life insurance. Modified premiums begin low but jump to a higher level after several pay periods. They remain at the high level for the remainder of the policy.
Graded premium whole life insurance
Graded premium life insurance is another variety of whole life insurance. Graded premiums begin low but increase gradually until they reach their ultimate level. Once the ultimate level is attained, the premiums remain so for the remainder of the policy.
Single-premium whole life insurance
The entirety of a single-premium whole life insurance policy may be paid for by a single, grand premium at the start of the policy. Whole life insurance guarantees a death benefit, so single-premium life insurance functions a bit as though it were a loan, with the term of the loan left uncertain but the amount to be repaid fixed from the start.
Premiums in universal life insurance
The premium required for universal life insurance differs vastly from those of the other two main types of life insurance. Whereas non-universal policies require a certain amount be paid every year or month, universal life insurance premiums requires no regularity with regard to amount or periodicity—you pay however much you want, whenever you want. The machinery of universal life insurance requires that you maintain enough cash value in your policy to cover certain periodic charges. Therefore, it is incumbent on the policyholder to monitor the inward and outward flow of funds in his policy.
