What is a Premium Deposit Account?
A Premium Deposit Account (PDA) is a financial arrangement that allows a policyholder to prepay future life insurance premiums by depositing a lump sum into a dedicated account. The funds in this account earn interest, and the insurer automatically deducts premiums as they become due. This ensures that premium payments are always made on time, reducing the risk of policy lapse due to missed payments.
The interest earned in a Premium Deposit Account can offset the total cost of premiums over time, potentially lowering the overall expense of maintaining the policy. For example, if a policyholder deposits several years’ worth of premiums into a PDA, the interest accrued can be used to pay part of the future premiums, making it a cost-effective way to manage long-term life insurance payments.
PDAs are particularly useful for individuals who prefer to manage their finances with a single lump-sum payment or want to lock in the current premium rates without worrying about future changes. It provides both convenience and financial predictability for policyholders.