subject: Characteristics of Single Premium Life Insurance – What are the Characteristics of Single Premium Life Insurance? [print this page] Characteristics of Single Premium Life Insurance What are the Characteristics of Single Premium Life Insurance?
What are some of the characteristics of single premium life insurance? The name of the insurance gives the most significant characteristic. The policyholder pays a single lump sum at the beginning of the policy. That is the total amount due on the entire policy. That money goes into investments that accumulate value quickly. The expectation is that the policy will continue to grow until the named insured dies. At that point, the entire amount of the investment would pay out to the beneficiaries.
Another characteristic of single premium life insurance is the flexibility of investment options in some policies. Some policies accumulate wealth at a fixed interest rate. Others allow the policy owner to select from different investments such as stock, bonds, and money market accounts as well as the fixed interest rate option. For those that know little about the stock or investment markets, the fixed interest rate option is the safe one. But, the investment option can pay larger dividends when the stock market grows. Each of these policies comes with a minimum death benefit attached.
A critical option in single premium life insurance is the ability to withdraw value while the named insured is still living. Many allow for withdrawal of funds to help fund long term care insurance for older individuals. This helps cover the costs associated with long-term care while preserving the estate and the bulk of the life insurance for the beneficiaries. Some policies allow withdrawal of funds if the named insured faces a terminal illness expected to take life within one year. This is a way to make sure that long-term care does not drain assets from what the named insured wants to leave to heirs.
There are other ways to get cash from the policy. Like other whole life policies, one characteristic of single premium life insurance is the ability to take loans from the cash value of the policy. The loans will reduce the payable death benefit unless paid. There are potential tax penalties if you do this however. It is important to consult with a tax professional if you want this option. All assets grow tax-deferred in the policy. But once withdrawn as a loan, they become subject to IRS tax penalties. It is important to speak with an insurance expert before investing in any insurance policy in order to find the best policy for your needs. It is critical in your financial planning.
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