Winning the Single Premium Conversation with a Regular Premium Strategy
In financial advisory, single premium cases often appear more attractive due to their seemingly stronger accumulation power. With the full lump sum invested upfront, the insurance company can immediately allocate the entire amount into its participating (par) fund, allowing for potential compounding returns over time.
However, as advisors, we must recognize that regular premium planning offers strategic advantages that can counter and even outperform single premium returns in certain scenarios. In this blog, we’ll break down the mechanics of single premium versus regular premium par fund plans and explore how a well-structured strategy can tilt the conversation in favor of regular premium solutions.
Disclaimer: The breakdown below is for illustrative purposes only and should not be used as a sales pitch or financial recommendation. Financial consultants are responsible for their own presentations and should seek guidance from their agency or company if they have any questions or require further clarification.
Case Study: Manulife Steady Payout vs. Regular Premium Par Fund Planning
We will be using Manulife Steady Payout as an example—A plan marketed with a guaranteed yield of 4% p.a., based on guaranteed annual income payouts. For instance, a $100,000 single premium policy delivers 13.5% annually, equating to $13,500 per year over 9 years, resulting in a total payout of $121,050.
While it may appear to be a strong option for clients looking for guaranteed income, there are alternative strategies that advisors can leverage to demonstrate how a regular premium participating fund plan can provide better long-term value and flexibility.
To ensure a fair comparison for clients to evaluate their options, investment plans aren't suitable due to differing risk profiles. The closest alternative would be an endowment plan.
However, it's important to note that endowment returns depend on the company's bonus declarations and are not guaranteed, unlike the assured returns offered by Manulife Steady Payout.
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Below, we illustrate a 10/10 endowment plan using the same $100,000 example, distributing the premium across 10 years with maturity at the end of the 10th year. While we are unable to present an exact 9-year return like Manulife Steady Payout due to policy limitations restricting a 9-year maturity, this breakdown provides a comparable perspective for evaluation.
In this example, the projected maturity amount at a 4.25% illustrated investment return is $114,603 after 10 years. However, even with an additional year to maturity, it still falls short of Manulife’s total return. Here’s how we can bridge the gap,
Laddering Approach
With regular premium planning, policyowners retain excess cash each year instead of committing the full amount upfront like a single premium plan. These surplus funds can be redirected into short-term fixed deposits or high-interest bank accounts to generate guaranteed returns.
Assuming a 3% return rate, here’s a breakdown of how much could potentially be accumulated over the course of 10 years,
| Year | Excess Cash | Returns at 3% |
|---|---|---|
| 1 | $90,000 | $2,700 |
| 2 | $80,000 | $2,400 |
| 3 | $70,000 | $2,100 |
| 4 | $60,000 | $1,800 |
| 5 | $50,000 | $1,500 |
| 6 | $40,000 | $1,200 |
| 7 | $30,000 | $900 |
| 8 | $20,000 | $600 |
| 9 | $10,000 | $300 |
| 10 | - | - |
Using this laddering approach, the potential returns could generate an estimated $13,500. When combined with the maturity amount, total returns could reach approximately $128,000—surpassing Manulife's Steady Payout example of $121,050.
Beyond potential returns, this strategy offers added benefits, including greater liquidity. Unlike Manulife’s plan, which locks in the full single premium and provides only structured cashback over nine years, the regular premium method allows policyowners to access their cash at any time, providing financial flexibility for emergencies.
