subject: Single Premium Life Insurance – Answering Some Common Questions about Single Premium Life Insurance [print this page] Single Premium Life Insurance Answering Some Common Questions about Single Premium Life Insurance
What is single premium life insurance? This form of life insurance requires a single large upfront payment. That single lump payment funds the investment portion of this whole life policy. The value of the policy will increase as the value of the investments behind it increase. Some policies offer a fixed rate return while others offer other investment options. The fixed rate of return is usually lower than the final value of policies using the investment options. But, it offers a steady rate of return with a guaranteed minimum face value on the policy.
How common is this type of life insurance? Actually, it is very uncommon. It is one of the rarest forms of life insurance issued in the insurance market. One reason for this is because many people do not know of its existence. Insurance professionals often do not offer it to potential insurance customers. This is mainly due to the fact that it requires a large upfront payment. If someone has that type of money, the customer may not have interest in an investment with a low rate of return. However, it offers a steady investment that some may find appealing.
What is a major benefit of this of insurance? Single premium life insurance is actually a good tax shelter. It offers a tax deferred investment where money can build up. There are no penalties related to the money when it pays upon the demise of the named insured. The only time taxes become an issue is if the policyholder makes a loan or partial withdrawal on the policy. Then the IRS penalties will become active. For those that want to provide a set lump sum to beneficiaries after death, this is an excellent option. It provides a tax-deferred method of passing on an inheritance.
How can single premium life insurance help the policyholder? Even with the tax penalties associated with loans and withdrawals, there are ways to get money from this investment without penalties. Some policies allow withdrawals to pay for long-term care insurance. Others offer withdrawals related to caring for the named insured if that person is diagnosed with a terminal illness expected to take life within one year. The amount of money paid upon the death of the named insured will vary depending on the age of that person and the amount invested at the beginning of the policy. Speak with an insurance professional if this interests you.
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