Single-Premium Life Insurance

Eric Van Haaften Permanent Life Insurance

Are you looking for permanent life insurance but don’t want to continue making payments?

If so, a single premium life insurance policy might be the right choice for you.

As the name suggests, single premium insurance only requires a one-time payment to purchase coverage which can last a lifetime.

In this blog post, we’ll discuss the three main types of single premium policies and explain the benefits and drawbacks of each.

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What is a single-premium policy?
Types of SPL insurance policies?
Why buy single premium life insurance?
What are the pros and cons of SPL insurance?

What is a Single-Premium Policy?

Single premium life insurance is a type of permanent insurance where you pay only one premium, and your coverage lasts for the rest of your life.

This type of insurance policy is often used to save money on premiums since there is no need to renew or pay each month.

The ultimate size of your death benefit will depend on the premiums invested, your age, and your health when you apply for coverage.

Younger buyers will pay the same premium as older individuals but get a higher death benefit.

The reason is that the more time a policy can accumulate earnings, the larger the death you can purchase.

SPL premiums for younger buyers start at $5,000 for face amounts under $100,000.

All single payment policies are modified endowment contracts (MECs) with negative tax features.

A MEC refers to the maximum amount of money you can contribute to a policy based on your death benefit.

Once your policy transforms into a MEC, cash contributions and cash gains become taxable income.

If you wish to avoid a MEC status and still want to pay off your policy quickly, we recommend making payments over several years with a limited pay life policy.

Types of Single Premium Policies

There are several types of single-premium life insurance policies, each with its unique set of benefits and features.

A fully funded policy requires you to pay a one-time premium that goes into your cash value, which eventually helps pay for your policy as you age.

Virtually any whole life, variable life, universal life, or indexed life insurance policy can be financed with a single premium.

Cash Value single premium life summary

Single-premium whole life is a form of permanent life insurance that protects you for your entire life. Whole-life offers guaranteed cash values and dividends that accumulate over time.
Single-premium variable life is another form of permanent life insurance where cash values are invested in a series of sub-accounts containing stocks and bonds accounts.
Single-premium indexed life does not offer a guaranteed fixed interest rate. Instead, your cash values are linked to the performance of a financial index such as the S&P 500 Index.
Single-premium universal life allocates your cash value to a fixed or equity index account and provides lifetime coverage.

Why Buy Single Premium Life Insurance?

Single premium whole life insurance can save money since you’re paying for your coverage with one payment.

However, because of its MEC status, you should not purchase an SPL insurance policy to access the cash values.

Investors wishing to maximize cash value gains should make continuous payments using a life insurance retirement plan or the infinite banking strategy.

Death Benefit only

People with enough money to afford a one-time payment and who want lifetime guarantees can benefit from buying permanent insurance.

Is Single Premium Life Insurance a Good Investment?

Single-payment life insurance is not an investment but a life insurance policy with a cash-value savings element.

While SPL insurance policies accumulate a cash value, the cash value is simply a policy component.

A single premium policy is appropriate for buyers looking for an easy way to leave a tax-free asset to their beneficiaries.

Younger buyers can pay a single premium and let their cash value growth fund a significant death benefit.

These permanent insurance policies are perfect for seniors not interested in making additional payments and needing permanent coverage.

Single-Premium Hybrid Insurance Policies

Some permanent life insurance policies give you tax-free access to the death benefit to pay for long-term care expenses.

As people age, their needs change, and many prudent seniors eventually consider long-term care insurance.

You can pay one lump-sum premium into a permanent policy with additional nursing care benefits.

The benefits can vary by company, but a traditional long-term care benefit will equal five times the premiums paid into the policy.

The death benefit not used for nursing care will ultimately pass to your heirs when you pass away.

Additional living benefit riders can give you access to a portion of your death benefit if you are diagnosed as terminally or chronically ill.

Replacing old coverage with a single payment

Single premium policies can be funded through a one-time 1035 tax-free exchange of the cash value from an existing life insurance policy.

A section 1035 exchange occurs when the cash in an existing life insurance policy is transferred to a new one without tax.

This one-time payment life insurance strategy could eliminate your future premiums and buy a death benefit guaranteed not to change.

Pros and Cons of SPL Insurance

A fully funded insurance policy is expensive and not for everyone, but it can be a powerful estate planning tool for those needing lifetime coverage.

Because numerous options are available, you should understand the pros and cons of choosing this policy.

Pros of Single Premium Life

Single-Premium Payment: The policy is easy to control when you only pay one lump sum for lifetime coverage.
Permanent Coverage: SPL coverage will last your entire life with only one initial lump-sum premium payment.
Tax-free death benefit: The death benefit that goes to your beneficiary when you pass away is not taxable.
Living benefits: Prepaid life insurance offers living benefit riders that give you access to a portion of your death benefit if diagnosed as terminally or chronically ill.
Long-term care – A long-term care rider can be added to your policy to help you pay for long-term nursing care.
Tax-deferred growth – Your investments will grow tax-deferred inside the policy.

Cons of a Single Premium Policy

Needs: If you do not need permanent life insurance when you retire, then avoid permanent coverage.
Cash Value Restrictions: Because single-payment policies are considered MECs, it’s hard to use the cash value.
Lump-sum payment: An enormous lump-sum premium can be difficult for some people to pay upfront.
Insurer keeps the cash values: Unless money is taken out before you die, beneficiaries only receive your death benefit and do not get your cash value.
Prepaying premiums: If you pass away prematurely, you could have paid substantially less in annual premiums if you had opted for recurring payments.
Limited contributions: Additional contributions can not be made to the policy once you have established a policy.

Buying a Fully Funded Policy

We are proud to be one of America’s most dedicated life insurance agencies.

We are an impartial, independent agency and provide life insurance rates from numerous life insurance companies.

Your risk profile, age, and overall health will determine the maximum death benefit your one-time premium can purchase.

When shopping for the best single-premium life insurance policy, make sure to compare illustrations from many companies.

Affordable Life USA can provide a customized illustration that will show you the cash value accumulation, riders, and long-term care benefits of each policy.