What Is Single Premium Life Insurance?
Find Out If SPLi Is Good For You!
This website has already explained single premium life insurance. If you are unfamiliar with the topic, you may want to go back and browse the basics.
Update: Due to interest we added a new page that explains a little bit about getting single premium life insurance quotes.
One Payment Equals Lifetime Coverage
Basically, a lump sum of cash is put into a cash value life insurance policy a the very beginning. This is usually a whole life policy with some sort of indexed or percentage return.
This funds the actual coverage for the rest of the insured person’s life, and it should also start the policy with a cash value. Here are some basic things to note before we discuss the advantages of getting life policies this way!
- This cash value will be somewhat less than the original cash funding amount because of administration feeds and the cost of coverage.
- However, in simplest terms, now the cash account should have the opportunity to grow quickly because the coverage is already funded.
This probably all seems a bit odd. Most of us are used to purchasing our policies with an agreement to making monthly, quarterly, semi-annual, or yearly payments. For some people, this odd way of doing things can have some advantages though.
Single Premium Life Insurance Disadvantages
Here are the main disadvantages of single premium life insurance. They will only be disadvantages for some people, so you need to consider them carefully to see if they would be drawbacks for you.
- You do need that lump sum of money to fund the policy, usually at least $5,000 – and probably more. If you do not have a sum of cash that you have set aside for long term use, then you should probably pass.
- Since you fund the policy in one step, you may not get the full tax advantages of normal life insurance policies that get funded over a period of 7 years or more. Your earnings should be tax deferred while in the cash account, and your beneficiaries should still get tax free proceeds if you pass away. However, your withdrawals may be taxed. This is NOT meant to be tax advice, but just a heads up you need to look into the current rules where you live.
Single Premium Whole Life Insurance Advantages
Now we get to the good part! There are some benefits of being able to fund your lifetime coverage right away.
- You may choose a fixed interest rate return (fixed) or a market return (variable), or some hybrid with market-like growth but guarantees. This means your cash account will have an opportunity to grow, tax deferred, within the account.
- You will also, of course, immediately have fully funded life insurance for the rest of your life. Your own beneficiaries will be able to collect the proceeds without having to pay taxes, and without going through the hassle of probate, etc.
- Many single premium life insurance policies also have provisions to withdraw some, or all of, the cash value in case of illness or long term care expenses. This means your policy may do double duty as a life insurance policy and a long term care insurance alternative.
- Your policy may also allow you to withdraw some cash for daily living expenses. So it may be useful as an income source.
- Since you have a funded cash value policy, you may also be able to use it in a senior life settlement, so you can get some percentage of the actual death benefit. This death benefit amount should be higher than the cash account or surrender value.
This article is intended as a very basic 101 of some of the disadvantages and advantages of single premium whole life (SPLi). Hopefully, now that you understand the basics, you can find a good life insurance agent who can give you in-depth information that has been tailored to your individual situation.
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