Single Premium Life Insurance
Should you buy term life insurance or permanent? Single premium life insurance is a type of life insurance policy that allows for a single initial premium that is paid on issuance of the policy. This is an excellent choice of life insurance for anyone who receives a lump sum of money, whether from a savings account or retirement; inheritance; any type of payout; a present; or even contest or lottery winnings. Single premium policies generally accrue cash value and are eligible for dividends. Because the premium is paid upon issuance, single premium life insurance is easier to qualify for, in a medical and age sense. In this sense it is like term life insurance, wherein you typically are approved without a medical exam.
Depending on how old the insured person is, a single premium payment is usually insured for at least twice that amount in immediate protection. As time passes, the amount of the insurance grows, and eventually becomes worth several times the amount of the initial premium. There is a guaranteed death benefit to be awarded to beneficiaries on the event of the insured's death, usually without tax. (Also like term life) Because of these things, a single premium life insurance policy is best for those who plan to keep their policy without withdrawing any of their cash value until death, upon which their family will be awarded the guaranteed benefit.
The guaranteed death benefit is equal to the face value of the policy. (As in term life insurance) The death benefit will decrease as funds are withdrawn or loans are taken out, but the value increases over time as the policy sits. (Unlike term life) Any guaranteed death benefit is dependent upon the policies of the insurance issuing company.
Before purchasing a single premium life insurance policy, it is a good idea to develop a retirement plan and an estate settlement plan for you and your spouse or beneficiary. Include any death expenses, which can range from funeral arrangements to any other final arrangements that may be needed. Also consider how you can pass your estate on to your beneficiaries with the maximum amount of tax benefits. If you are planning to have your benefits or part of your benefits awarded to a charity or cause, ensure the legitimacy of the business or organization before deciding to donate your funds to it upon death.
Find a qualified and well-versed insurance agent (preferably a chartered life underwriter or certified financial planner) to help you and your family choose a company and a policy. Elderly people may appreciate the minimal underwriting necessary in a single premium life insurance policy. If a charity or non-profit cause is listed as a beneficiary, the tax benefits may be improved in your favor.
There are certain things to keep in mind when considering a single premium policy. Remember that withdrawing cash values from a single premium policy may cause extra taxes. Also note that life insurance benefits are associated with an estate for estate tax purposes. There are also certain rules and regulations regarding a minor's receipt of insurance benefits. If a large single premium is decided to be a gift by the IRS, it may be taxed as such. Also keep in mind that donations to charities and organizations are not guaranteed to receive tax benefits. Your best bet to find out if this type of policy is better for you than term life is to search side by side online for both quotes and coverage.
