How to Do More with Your Single Premium Life insurance Policy
You may be thinking about a single premium life insurance policy, but not sure if it is the best use of your money.
This type of policy may, or may not be right for you, depending on what your goals are.
In this article, we will show you:
- who should buy a single premium insurance policy
- how to make the policy more valuable with riders
- how to get the best quotes
- who the best companies are
- and when you should opt for a 10 pay policy
What is Single Premium Life Insurance?
Single premium life insurance is a type of policy where you contribute just one lump sum premium, and then no additional premiums are due. As with other types of life insurance, a single premium policy will pay out an income tax-free death benefit to your survivors. But the benefits don’t stop there.
For instance, as a type of permanent life insurance, the cash value in a single premium policy will build up much faster as compared to a policy where premiums are contributed on a monthly or yearly basis. And, because the funds inside of the cash value component are allowed to grow tax-deferred, they can accumulate exponentially over time.
The different types of policies
There are several different single policy options that you can choose from, including:
- Whole Life – With a single premium whole life insurance policy, the death benefit is guaranteed, and the cash value grows based on an interest rate that is set by the insurance company.
- Universal Life – A single premium universal life insurance policy can allow you more flexibility in terms of the policy’s cash value growth. You may also have the ability to move funds between the insurance portion of the policy and the cash value component.
- Indexed Universal Life – Indexed universal life insurance also provides a death benefit and a cash value component. With these policies, the return on the cash value is based on an underlying index, such as the S&P 500. In up years, this can lead to higher returns, typically up to a stated cap, or maximum. But in down years, the cash value will simply be credited with a 0%. So, while there is no gain, there is also no loss to the policy’s cash component, allowing for higher return with no downside risk.
How Much Does a Single Premium Policy Cost?
Several key factors will determine the cost of a single premium life insurance quote.
These can include the age, gender, and health condition of the insured, as well as whether or not the insured is a smoker.
Besides, the premium cost is also based upon the type and amount of coverage that is being purchased, and by the insurance carrier that you are buying the policy through. Because of that, it is recommended that before you commit to buying a single premium life insurance policy, you compare quotes from several different insurance carriers.
Below is an example cost chart of a 40 and 60 year old male, non tobacco at a preferred plus rate class.
Male Age 40
- $250,000 Death Benefit
Male Age 60
- $250,000 Death Benefit
10 Pay vs Single Premium Life
You may also want to compare single premium life insurance with other possible coverage alternatives, such as a 10-pay policy. Here, for instance, rather than paying just one single premium, the policy will be paid up after ten years of premium payments.
Going with a 10-pay policy rather than a single premium plan could help you to avoid the policy being considered a Modified Endowment Contract, or MEC. A MEC is a life insurance policy that has been funded with more money than is allowed by federal law – and if policy becomes a MEC, it can lose its tax-advantaged status.
But by avoiding the Modified Endowment Contract status, you can substantially leverage your money – especially if you want access to your cash value. With that in mind, a 10-pay life insurance policy could be a better alternative.
When you work with an Insurance Geek it will allow you to review various policy options to determine which is best for you and your financial goals. With an independent insurance advisor, you can also compare life insurance quotes all in one place, rather than having to contact each of the individual insurance companies directly.
The Best Single Premium Insurance Companies
Although several insurers offer single premium life insurance, some carriers tend to stand out. For example, Sagicor Life offers a preferred premium rate that is typically lower than other carriers’ preferred plus rates. Also, this insurance company also provides a no exam option on their single premium life insurance coverage.
In addition to the premium rate, it is essential to consider other factors, too, when choosing a single premium life insurance policy. As an example, some insurance carriers may offer a premium bonus, which can allow your cash value to grow even faster.
As with other types of life insurance, you may be able to add additional benefits, or riders, to your single premium life insurance policy. Some of the more popular life insurance policy riders include:
- Critical Illness Rider – With a critical illness rider, you can access some (or possibly even all) of the death benefit, penalty-free, if you are diagnosed with a specific illness such as cancer or heart disease.
- Chronic Illness Rider – The chronic illness rider allows you to access funds from the death benefit if you are unable to perform two “daily living activities,” such as bathing, dressing, and getting to and from the bathroom on your own. To access the critical or the chronic illness riders, you must typically satisfy a waiting period (after diagnosis). In addition, the policy usually has to be in force for a certain amount of time, such as two years.
- Return of Premium Rider – Certain carriers may offer a return of premium rider starting from Day 1, with no surrender penalty. So, depending on the situation, you could end up getting your life insurance coverage for “free.”
- Long Term Care Rider – Attaching a long term care rider to a life insurance policy is a great option. It can provide you with cash for long term care cost. However, this rider does come with underwriting guidelines that have to met in order to qualify.
It may also be possible to add a long-term care benefit to a single premium life insurance policy. In this case, provided that you qualify, you may be able to access funds from the policy regularly (such as monthly) to pay for the cost of long-term care services.
Is This Type of Policy Right for You?
Although there are many advantages to owning single premium life insurance, these policies are not right for everyone. But this type of coverage may be an excellent addition to your financial plan if you:
– Want to leverage parked dollars (vs. keep them in a CD)
– Don’t want to worry about paying monthly or yearly premiums
– Want to minimize taxes for asset transfer purposes
The best way to truly determine whether or not single premium life insurance is right for you is to consider your overall financial goals and objectives. Then, if this type of coverage makes sense, it is crucial that you compare single premium life insurance quotes and insurance providers before you move forward.
How to Find the Best Quotes
If you’re ready to compare quotes, we can help. We have built a quote engine just for consumers to compare the cost of just this type of plan in. Use the quote widget in the sidebar of this page.
At Insurance Geek, we work with more than 30 of the top life insurance carriers in the market place, so we can provide you with multiple quotes to compare, as well as help you to “customize” coverage that works best for your specific short- and long-term financial needs.
Adding a single premium life insurance policy to your overall portfolio mix, can provide you with tax-advantaged cash value growth, along with a financial “safety net” for your loved ones and survivors.
Want more details? Just contact us today, and we’ll answer any additional questions that you have.