When you purchase a burial insurance policy, you pay a premium to keep the plan active and allow your beneficiary to access the death benefit when you’re gone. The premium can depend on various factors including the type of insurance and your age.
The initial payment and total payments ultimately depend on the payment structure of the premium — which could affect what the initial premium is, if it will increase, and how it might increase. One type of structure is referred to as a “capped premium.”
Before deciding that a capped premium is a suitable option, you should understand what it is, and the pros and cons associated with it.
Capped Premiums Defined
Capped premiums are payment structures available to people looking for a guaranteed cap on their premiums. These limits are usually a percentage of the initial premium amount, but when this cap kicks in, they may depend on the policy and the predetermined age or circumstance that would unlock it. The age at which most policies refer to is 70 years old, and the common policies with these caps are NSLI & VSLI Term Policies.
Pros and Cons
When you consider that a capped premium has a maximum payment amount, it could pose different pros and cons. For example, a benefit of having a capped premium is that the guaranteed maximum could help strengthen your financial stability and make the policy slightly more affordable.
In addition, knowing what this maximum amount will be could help prepare you for rising costs — but you’ll know that the payment will only go so high. Prior to capped premiums, participants were finding that they could no longer afford to make the payments, especially later in life or after certain health circumstances.
The consequences of having a capped premium are that it limits the amount that can be paid. This could be the case for people that otherwise would be able to pay more, which could ultimately be invested and provide the opportunity for a larger benefit amount within the policy. A policyholder with more financial stability and capabilities may wish to take this into account when determining their financial strategy.
Policyholders for various types of insurance are required to pay premiums to pay and maintain their insurance policies. There are different kinds of payment structures available to pay premiums, which can ultimately affect the initial amount and future amounts. These amounts are usually based on age and other factors. The type of payment structure could play a role in deciding what policy and/or payment structure is chosen.
Capped premiums are a type of premium payment structure that’s available, placing a cap on the required amount. Having a limit on the premium amount can have various benefits and limitations, but could offer participants a better opportunity for financial stability and preparation.
We Can Help You Make a Smart Choice
If you need more information about your insurance options, premiums, and capped premiums, or if you simply want to learn more about burial insurance policies, then we can help. Call 800-548-3249 if you need guidance in making educated decisions or what options may be best for you!