Single Premium Life Insurance

Death has to be in the top three most unwanted conversations one wants to have with their loved ones. Life insurance is definitely mentioned but goes hand in hand with the death conversation. With this being said, congratulations you are aware that life insurance can be a foundation for your family’s financial protection! If you are looking for a comprehensible article on single premium life insurance then you have come to the right place. In this article, we will be dissecting single premium whole life, universal life, we will even throw some pros and cons in there for fun, and end with the bottom line discussion. The following are key points from this article;

  1. Single premium life insurance is also known as single pay life insurance or paid-up life insurance. Just like the name states, it is only one premium that you have to pay and you will no longer have to pay premiums. Basically, if you purchase single pay life insurance you will have to pay a certain amount of cash up front to secure that your life insurance beneficiaries will receive a certain death benefit payment when you pass away.
  2. Single premium whole life is a plan of insurance that is paid with a one-time payment but in return, you will receive a fixed interest rate of the return.
  3. Single premium universal life insurance is a good option for those who want to take advantage of a UL policy and get the benefit of paid-up life insurance.
  4. A big advantage that single premium life insurance has is that the death benefit is tax-deferred, or tax-free. This is the biggest benefit because it can go to your heirs without having to go through probate which is a huge advantage for those who have a larger estate.
  5. There are a couple of cons associated with single premium life insurance and one of them is a big one, the cost, it can really prohibit many people from getting this kind of insurance. The minimum amount for SPLs is $5,000 and that usually isn’t enough coverage for many consumers.

What does single premium life insurance mean?

Single premium life insurance is also known as single pay life insurance or paid-up life insurance. Just like the name states, it is only one premium that you have to pay and you will no longer have to pay premiums. Basically, if you purchase single pay life insurance you will have to pay a certain amount of cash up front to secure that your life insurance beneficiaries will receive a certain death benefit payment when you pass away. The amount of coverage usually is directly proportional to the amount of initial contribution, which is your age and your health.

Single Premium Life insurance policies

Single premium whole, universal, and variable life insurance policies are not the same thing. The following are simple definitions of the three different policies.

Single premium whole life definition

Single premium whole life is a plan of insurance that is paid with a one-time payment but in return, you will receive a fixed interest rate of the return.

Single premium universal life definition

Single premium universal life insurance is a good option for those who want to take advantage of a UL policy and get the benefit of paid-up life insurance. However, a UL offers little to no cash value available due to lower premiums.

Single premium variable life insurance

This is definitely the most complicated policies available because you will need to manage the portfolio as you would any other financial portfolio. This is complicated for those busy bees because you really need to have the time to study and analyze your life insurance portfolio. The upside is that you will have the freedom to place your policy’s money in certain funds.

Single premium life insurance pros or advantages

A big advantage that single premium life insurance has is that the death benefit is tax-deferred, or tax-free. This is the biggest benefit because it can go to your heirs without having to go through probate which is a huge advantage for those who have a larger estate. Even the money you need to take out to help pay for long-term care costs are tax-free. Another pro of single premium life insurance is that you no longer have to worry about your policy lapsing because a single premium payment has been made so you don’t have to worry about late payments. SPL allows you to have access to a portion of the death benefit which you can do if you need help paying for hospital or care needs if you suffer from terminal illness. There is constant and stable growth with SPL and that’s what makes everything more appealing to people, hello, more money! This is because of the fixed interest rate that is attached to the policy.

Cons or disadvantages of single premium life insurance

There are a couple of cons associated with single premium life insurance and one of them is a big one, the cost, it can really prohibit many people from getting this kind of insurance. The minimum amount for SPLs is $5,000 and that usually isn’t enough coverage for many consumers. Another con is that you are required to pass very strict medical qualifications for life insurance meaning that if you plan to increase the amount of death benefit you will have to redo the whole process of underwriting which can really be a drag for most people. The fact that SPL has fixed rate on returns which are good in a way because it will provide protection in times of unstable market conditions but in other times it basically puts a lid on the opportunity of maximizing your benefits. The last two disadvantages that SPL has is that the IRS penalizes those under the age of 60 who withdrawal from the policy if you get penalized the IRS will apply a 10% penalty. Lastly, if you decide to surrender your policy you will be subject to surrender charges

Using a single premium policy in estate planning

If you are an affluent individual then you probably are already aware of the estate tax laws. Let’s say you’re 40 years old, in decent health, married, and have a net worth of $12 million dollars. Because of your high net worth, you will be subject to tax which can be a hefty cost. However, with proper estate planning, you should only have to pay estate taxes on $1 million dollars by using you and your spouse’s unified tax credit. You could use life insurance to properly plan your estate and if you have the liquid cash you may be able to pull it off! First, you should purchase a $1 million dollar guaranteed universal life insurance policy with a single premium of $133,114. Then you could have the policy owned by a life insurance trust and will be able to separate the $1 million death benefit proceeds from your estate. So the question is whether your family would prefer to pay $1.5 million in taxes or $650,000.

Who would benefit from a single premium life insurance?

Many people would benefit from a single premium life insurance policy if you could afford it but it would be ideal if you are below 55 years old and have a 30-year working horizon. The time frame would allow your SPL policy to have enough time to let the cash-value grow. If you are buying for your children or grandchildren this would be ideal because the cost of SPL for children is the lowest you will ever see. If you are a senior 50 years old and above who are looking to maximize available benefits when transferring their wealth, the SPL would allow you to be able to set aside a large amount of money for your heirs. If you have special needs grandchildren who will need a lifetime of income this would be perfect for them to have coverage all their lives.

Is single premium life insurance right for you?

To be honest, we couldn’t tell you if single premium life insurance is right for you for the same reason we couldn’t tell you which life insurance company is the best, and that is because everyone has different very specific needs, health, and lifestyles. Life insurance is not a one size fits all kind of thing. This product can be a good solution for some people like the situations we discussed earlier.

You still have options!

Whether you decide to purchase SPLI, single premium life insurance, or not you should still shop around for quotes. Shopping around for quotes will help you identify which carrier offers the best rates. If you have 30 seconds you should go under this article and fill out our super quick and easy quote engine and see for yourself what you could be offered while comparing them at the same time. However, you can take advantage of our FREE services. Don’t DIY, do it yourself, when you have us around! We are an independent life insurance agency who work with over 60 top rated companies and we can do all the shopping for you again, for FREE. Everyone loves a free service, but not only will we find you the best life insurance company that reflect your specific needs, health, and lifestyle but we will also do the whole application for you! Give us a call today so that you can spend more time with those who truly matter the most, your family!

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About Mack Dudayev

Mack is owner and life insurance expert at InsureChance. On a mission to create a way everyone can understand, afford and attain the right life insurance coverage to protect their financial responsibilities.

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