It’s that time where you’re starting to think about your estate, and how you want to maximize it so your beneficiaries can get as much as possible.
It’s no secret – life insurance is a great way to do that. But what type of life insurance policy do you go with?
In this article, we discuss what single premium life insurance is, the difference between single premium and annual premium life insurance, as well as some sample rates.
Quick Article Guide:
1. What is Single Premium Life Insurance?
2. Single Premium vs. Annual Premium
3. Single Premium Life Insurance Sample Quotes
4. Benefits of Single Premium Life Insurance
5. Disadvantages of Single Premium Life Insurance
6. Questions? We Can Help
Single Premium Life (SPL) Insurance, also known as paid up life insurance or single pay life insurance, is a type of insurance in which you pay a lump sum of money into your policy, and in return, receive a guaranteed death benefit until you die.
Note that you must pay this up front though – hence the phrase “single premium” – otherwise you will not be guaranteed the death benefit. Because of this, this type of payment may not be ideal for those who are younger or cannot afford to pay the lump sum all at once.
Types of Single Premium Life Insurance
Under the umbrella of single premium life insurance comes three different types of policies – whole, variable, and universal life insurance. Yes, they all require the lump sum payment up front, but what the policy entails differs between the three.
Single premium whole life insurance is a type of policy in which a fixed interest rate is placed on your return, which is based off of the life insurance company’s investment experience and current economic status. Since the rate is fixed, this is generally considered the safer option.
Single premium variable life insurance is a little different – it gives you (the policy owner) a few options as to where you can invest. You can choose to invest your policy money into professionally managed stock, bond and money market sub-accounts, or a fixed account. Wherever you choose to invest, the result of your returns will be based on the increase or decrease of your choices. If you are someone who is very familiar with stocks, or enjoy studying and analyzing your choices to ensure that your investment will be profitable, then this is a great option for you. If not, whole life or universal life may be a better route.
Last, but not least, we have single premium universal life insurance. Universal life is similar to term life, but instead of getting coverage for a certain number of years, you receive it until a specific age – such as 95, 100, 110, or even 121. It also has a cash value component/investment vehicle.
If single premium doesn’t sound right for you, you may want to think about annual premium life insurance instead.
What’s the difference?
Instead of making one large payments, your payments are broken down into 1 payment a year (annually). Let’s look at some sample quotes to compare the two cost-wise.
Sample single premium Guaranteed Universal Life quotes to age 121 for a “preferred best” 45-year-old-man:
$250,000 coverage: $40,552
$500,000 coverage: $74,575
$1,000,000 coverage: $144,622
$2,500,000 coverage: $361,555
$5,000,000 coverage: $723,111
Sample annual premium Guaranteed Universal Life quotes to age 121 for a “preferred best” 45-year-old-man:
$250,000 coverage: $1,857/year
$500,000 coverage: $3,357/year
$1,000,000 coverage: $6,450/year
$2,500,000 coverage: $16,127/year
$5,000,000 coverage: $32,254/year
Now let’s compare the two. The average male life expectancy in the United States is 79-years-old, so let’s round up to 80 just to make it a little easier. If our male lives to be 80-years-old, that’s 35 years before the beneficiaries will receive the payout.
|Death Benefit Amount||Single Premium||Annual Premium||Total Savings with Single Premium|
|$250,000||$40,552||$1,857 x 35 = $64,995||$24,443|
|$500,000||$74,575||$3,357 x 35 = $117,495||$42,920|
|$1,000,000||$144,622||$6,450 x 35 = $225,750||$81,128|
|$2,500,000||$361,555||$16,127 x 35 = $564,445||$202,890|
|$5,000,000||$723,111||$32,254 x 35 = $1,128,890||$405,779|
*Rates are accurate as of 03/30/18 and are provided for illustrative purposes only.
As you can see, if you can afford to go the single premium route, you end up saving quite a bit of money over the years. We’ll discuss some more benefits to single premium life insurance in the section below.
Single premium life insurance has quite a few perks, which include:
The biggest benefit of single premium life insurance is exactly that – a single premium, or one payment. You don’t have to worry about or manage future payments, and you know you’ll be guaranteed a death benefit. In addition to that, single premium life policies are great in conjunction with Long-Term Care Insurance, or a long term care rider.
Long-Term Care Insurance
Long-term care (LTC) insurance is a type of insurance that provides financial assistance to those who need help completing their activities of daily living (ADLs). These activities include dressing, bathing, eating, continence, transferring, and toileting.
This type of insurance can be very expensive, which is where SPL comes in. Certain SPL policies will give you tax-free access to your death benefit, so you can pay for the those long-term care expenses.
Whatever money is leftover from the death benefit after you pass away will be given to your beneficiaries income tax-free. If you don’t need any of the death benefit for LTC, then all of it will go to your beneficiaries as originally planned. But if you do need access to it, SPL can be very beneficial.
In addition to using the death benefit for LTC, many SPL plans offer an accelerated death benefit rider, which allows part of the death benefit to be accessed if you become diagnosed with a terminal illness and have a life expectancy of 12 months or less. Oftentimes, getting diagnosed with a terminal illness can be very costly, and using the death benefit to help with expenses can take a great load of pressure off you and your family.
If you choose to go with a single premium whole life policy, you’ll have access to cash value if need be. While this should not be your first go-to, cash value is a nice advantage if an emergency financial situation were to occur.
If you choose to go with a variable, whole, or universal SPL policy, you have the potential to invest your money and increase the value of your policy over time.
With the good comes the bad. Some cons of SPL policies include:
We’re sure you knew this was coming. As you saw with the quotes above, paying for an SPL policy is quite costly. SPL policies require at least $5,000 up front, and that amount won’t necessarily provide great coverage. Most decent SPL policies will cost at least $10,000. If you don’t have that kind of cash in savings (which many of us don’t), this is not a good policy choice for you.
Potential Investment Loss
The downside of investing your money is that while it may go well and increase, it can also go south and lessen your money, giving you less money than what you started with. Also keep in mind that if you do make a profit on your investments, those profits will be taxed if you choose to use your policy’s cash value before you die.
When choosing to go with a single premium life insurance policy, undergoing a medical exam is required to become approved. If you’re one of those people who aren’t a fan of needles, this won’t be ideal for you. Also note that if you decide to invest more money into your policy later on, a life insurance agent will have to underwrite your policy again, potentially calling for a second medical examination.
Still trying to decide which type of policy is best for you? We’re here to help.
At Term Life Advice, our agents do not have sales quotas to meet, they’re just genuine people who want to match you with the best life insurance company possible. We work with over 60 top-rated companies, and have no doubt that we can find the best company for you.
If you would like to receive an accurate quote based on your age and health, as well as which type of policy and amount of coverage you should choose, give us a call. Toll-free, no obligations: 855-902-6494.
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