About Single Premium Life Insurance

Traditionally, life insurance has been a defensive product that one purchased to care for those people who depended on them financially when they died. Then a new set of products called single premium life insurance was offered that were attractive investments. The primary purpose of single premium life insurance is to provide ones survivors with an inheritance or to leave money to charity.

Significance

Single premium life insurance is different from permanent insurance, because its cash value increases much faster due to its being completely funded. Furthermore, upon the death of the insured, the proceeds of the policy go to the beneficiaries free of federal income or estate taxes, just like a traditional life insurance policy.

Types

There are two basic single premium policies. A single premium whole life policy accumulates at a fixed rate of interest based on the past performance of the insurance company. The other is a single-premium variable life insurance policy that enables the policy owner to select the way the fund are to be managed. Obviously, if you are risk-averse, a single premium whole life policy is best because it will not be subject the market fluctuation.

Time Frame

The amount of the death benefit is determined by the age and health of the person covered. For example, a 50-year old male may pay $100,000 for such a policy and his death benefit will approach $400,000. On the other hand, a 60-year old female's policy will set the death benefit at about $200,000. The difference is based on the time that the insurance company will have use of your funds.

Size

You decide what size policy you buy based on your current portfolio mix as well as your income and expenses. If something happens that you do not expect, most single premium life insurance policies will allow you to withdraw funds in case of emergency. It make the purchase of a large policy less threatening, particularly if you have few assets besides your single premium life insurance policy.

Benefits

Not only will your heir s receive the death benefit established by the policy, tax-free, the transaction will avoid probate. Instead of waiting the normal 12 to 18 months to settle your estate, they will receive the funds immediately, upon your death.

Warning

Most insurance companies require a minimum of $5,000 to establish a single-premium policy, and no additions to the policy can be made. Furthermore, the IRS will deem the transaction taxable if you take cash from your policy that is not spelled out in your policy. For that reason, you may be advised to borrow funds from the insurance company as one way to avoid that unpleasant result.