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Single Premium Life Insurance

Researcher & Writer
April 08, 2020

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 single premium whole life insurance coverage.

What is single premium life insurance?

Single premium life insurance is also known as paid-up insurance, or single pay life insurance. When you purchase a paid up life insurance policy, you pay a certain amount of cash up front to the insurance company to secure that your life insurance beneficiaries will receive a certain death benefit payment when you die. The key is that the policyholder must pay cash up front, which is not possible for everyone due to the large lump sum payment required.

While single premium life insurance can help you avoid monthly premiums, they may not include some of the same tax advantages of other kinds of life insurance policies.

Single Premium Life Insurance

Once you decide to get a life  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 and your beneficiaries, we’ve put together some helpful information.

Typically, single-premium life insurance is permanent life insurance, not term life insurance.

Single premium whole life insurance

With a single premium whole life policy, the insured person can pay a lump sum upfront. You will pay one time, which is why it is called single premium. 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.

As your cash value grows, you can make cash withdrawals or take out loans, just as you would with a regular policy. But if you don't replace that cash, you could lose your coverage or chip away at the death benefits payout your beneficiaries could receive.

Single premium universal life insurance

As with whole life single premium policy, with a single premium universal life policy you will also pay a lump sum upfront. The biggest difference and advantage here is that this policy is typically cheaper than whole  life insurance. Typically with a universal life policy, you will also have options on how your cash value can accumulate. 

Pros and cons of single premium life insurance

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. Like any policy, a single premium policy has a variety of pros and cons. 

Pro HeadingPros
  • Pro BulletCan easily add long-term care benefits
  • Pro BulletCash value policy
  • Pro BulletCan help reduce taxes
  • Pro BulletNo stress about missing a payment
  • Pro BulletGreat for leaving inheritance
Con Heading Cons
  • Con BulletCost
  • Con BulletMedical Exam
  • Con BulletCash value withdrawals taxable

There is an option to get a single premium life insurance policy with long-term care (LTC) rider. This rider allows you to use your long-term-care benefits pay for nursing home or healthcare due to cognitive diseases or if you are unable to perform 2 out of the 6 activities of daily living. Essentially, this rider turns your policy into a life insurance and long-term-care insurance hybrid.

The LTC rider is a great option and it is important to note that this isn't only available on a single premium policy, you may be able to get it on more traditional types of policies as well. Just know that if you draw on your benefit to pay long-term care expenses, your beneficiaries may receive a smaller death benefit payout.

This policy contains a cash value. This is a great benefit to borrow from or make withdraws from. There are a few things to note with this:

  1. All permanent types of life insurance have a cash value, this isn't your only option. 
  2. When you borrow from the policy there will be an interest rate charged.
  3. If you withdraw funds, it could be taxable

So while having cash value is positive, there are some negatives that can go along with this. 

Life insurance can have many tax benefits and many people who know they are going to leave an inheritance can use a single premium policy as a tool for leaving a legacy that has some tax advantages. Many people turn to this life insurance policy to reduce their taxable income while still making a sound investment.

Unfortunately, a single premiums life insurance policy is considered a modified endowment contract (MEC), and MECs don't have as many tax advantages as other kinds of policies. Any cash withdrawals you take from a modified endowment contract, for example, will be fully taxed.

Still, 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. 

We touched on this earlier, but with this policy, you need to dump in a lump sum upfront to not have any more premiums. This can be a difficult task since you need a large amount of cash to fund this life insurance policy and most people aren't in a financial position to do so. Even for this reason alone, it isn't the life insurance policy for everyone. 

While taking a medical exam is listed here as a con, it is important to note that medical exams are typically a part of the traditional life insurance process and that won't just be for this type of policy. To learn more about the life insurance medical exam, check out our article.


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. 

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