There are many ways to maximize your estate. One of the most worry free ways to leverage your money and provide for your estate when you die is through paid up whole life insurance. With our focus on comparing the best insurance companies available for each unique client, we can help direct you to the carrier that is the right fit for you—based on your unique health and lifestyle.
Single Premium Life Insurance: Tips and Strategies
Once you decide to get a life insurance policy, you’ll realize there are many different kinds out there. One type that you may be considering is a single premium whole life or universal life insurance policy. To help you decide if a paid up whole life insurance or universal life insurance policy is right for you, we’ve put together some helpful information.
What does “single premium” mean?
Single premium life insurance is also known as paid up life insurance, or single pay life insurance. When you purchase paid up life insurance, you pay a certain amount of cash up front to secure that your life insurance beneficiaries will receive a certain death benefit payment when you die. The key is that you have to pay up front, which is not possible for everyone due to the large lump sum payment required.
Are Single Premium Variable, Whole and Universal Life Insurance Policies the Same Thing?
The short answer is no. Although all of these policies are single-premium, so you’ll always pay on lump sum up front, with single premium whole life insurance you will receive a fixed interest rate on the return which is generally considered the safer, less volatile choice.
If you opt for single premium variable life insurance, then you will need to manage the portfolio as you would any other financial portfolio. With these types of policies, you’ll have the freedom to place the policy money in certain funds, and thus your returns will be the result of the increase (or decreases) of your choices. If you aren’t someone who wants to take the time to study and analyze your life insurance portfolio, then your best bet is a single-premium whole life insurance policy rather than a single-premium variable life insurance policy.
Another option is single premium universal life insurance. One big advantage of a UL policy is you get the benefit of paid up life insurance, but at a typically much lower cost. The drawback is that there is little to no cash value available due to the lower premium.
Single Premium Life Insurance Quotes
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sample single premium guaranteed universal life rates are based on a 40 year old male at a preferred plus health class; rates must be qualified for
- Single premium payment of $74,456 will buy $500,000 of coverage.
- Single premium payment of $136,184 will buy $1,000,000 of coverage.
- Single premium payment of $340,462 will buy $2,500,000 of coverage.
- Single premium payment of $680,924 will buy $5,000,000 of coverage.
Comparison of single premium life insurance to paying the annual premium
sample guaranteed universal life rates based on a 40 year old male at a preferred plus health class; rates must be qualified for
- Annual premium payment of $2,874 will buy $500,000 of coverage.
- Annual premium payment of $5,400 will buy $1,000,000 of coverage.
- Annual premium payment of $13,500 will buy $2,500,000 of coverage.
- Annual premium payment of $26,999 will buy $5,000,000 of coverage.
So let’s do the math. The average life expectancy of a male age in 2016 in the United States is 77. For a healthy male, qualifying at a preferred plus rate, let’s add 5 more years for arguments sake. That means an annual premium for 42 years before the policy will ultimately pay out.
Potential savings choosing Single Premium over Annual Premium
Single premium life insurance based on a guaranteed universal life insurance policy.
- Single premium Universal Life payment of $74,456 for $500,000 death benefit or $2,874 annual premium. 42 payments will amount to $120,708. Total savings = $46,252.
- Single premium Universal Life payment of $136,184 for $1,000,000 death benefit or $5,400 annual premium. 42 payments will amount to $226,800. Total savings = $90,616.
- Single premium Universal Life payment of $340,642 for $2,500,000 death benefit or $13,500 annual premium. 42 payments will amount to $567,000. Total savings = $226,358.
- Single premium Universal Life payment of $680,924 for $5,000,000 death benefit or $26,999 annual premium. 42 payments will amount to $1,133,958. Total savings = $453,034.
Benefits of single premium or paid up life insurance
There is no right answer to this question; the type of life insurance policy that’s right for you depends on a lot of things such as your needs, expectations, and current health condition. The reasons some people choose a single premium universal life insurance or single premium whole life insurance policy include:
–Access to death benefit for long-term medical costs. In the event that you need ongoing medical treatment, many single-premium life insurance policies will be accessible prior to death. Single premium life insurance with long term care rider can be used to pay for nursing home or home health care. Other Living Benefits, such as an accelerated death benefit rider, allows a portion of the death benefit to be used if you are diagnosed terminally ill.
–Access to cash values in emergencies or otherwise. Not all life insurance policies have a cash value; in many instances life insurance is only accessible after your death. However, with most SPLs you can take a loan against your policy for multiple reasons.
–Tax shelter. Many people with the kind of expendable cash required to purchase a single-premium life insurance policy to reduce their taxable income while still making a sound investment.
–Never miss a payment. You only need to pay a premium one time, so you never have to get stressed out about missing payments—because with single-premium life insurance there are no payments. This can be a huge relief when you are using a single premium policy to fund an irrevocable life insurance trust for estate planning purposes. (Note for estate tax purposes: The initial amount gifted to the ILIT would be taxed against your lifetime exclusion but the subsequent leverage is typically well worth it. This might also be useful in planning for business succession with a buy sell agreement).
–Your policy acts like an investment. When you put your money into one of these vehicles, such as Fixed Index Single Premium Universal Life, you are potentially growing your money. You may see the value of your policy increase with time, and in most instances the percentage of growth will be higher than what you will get in a bank.
–For your children and grandchildren. If you have already decided that you will leave a set amount of money behind for your children or grandchildren, then a single premium policy may be the way to do it. Many people with children or grandchildren with special needs consider a single-premium policy.
What are the disadvantages to a single premium whole life insurance policy?
–Cost. The main disadvantage for a paid up life insurance policy is that you have to pay all the money up front. Unless you have a substantial amount of savings, then it may be hard for you to come up with the kind of money required for a decent policy. You will have to put forth at least $5,000 for an SPL, and in that amount you won’t get the greatest coverage. The truth is, a good policy will cost upwards of $10,000.
–Medical Examination. Another disadvantage for a single premium whole or universal life insurance policy is that you will likely have to undergo a medical examination. Also, if you decide to invest more money in your policy later, then you will have to have a life insurance agent underwrite the policy again. This may require a second medical examination.
–Cash value withdraws will be taxed. The profits you’ve earned against your investment will be taxed if you need to use the cash value of your policy before you die. This is the case in most investments, so it shouldn’t exactly be considered a disadvantage, but it is definitely something to keep in mind.
If you are considering a single premium whole life or universal life insurance policy, but aren’t sure if it is the right thing for you, give us a call. We thoroughly understand the nuances between the different types of life insurance policies offered by dozens of different life insurance companies.
We learn about you, your health, needs, and budget and then make custom recommendations based on that information. We do not favor any particular policy or life insurance company over another—we simply suggest what’s right for your specific case.
To get a free consultation and to learn if paid up life insurance is right for you, then get in touch with us today.
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