Buying insurance is not something you should rush into because choosing the right type of life insurance can really help to ensure your family’s security in the future. While there are many options available when buying life insurance, one type of payment option for many purchasers is single premium, or single pay life insurance, which allows you to secure your family’s well being with just one, lump-sum payment.
Traditional life insurance policies require you, as the policyholder, to pay premiums on a regular basis, such as monthly or semi-annually, or yearly throughout the life of the policy. At your passing, your beneficiaries will then receive their benefit payment. In contrast, single premium life insurance doesn’t require regular premium payments.
Benefits of a single premium insurance policy
Once effective, cash value exists in a single pay life insurance policy. The larger the initial premium payment, the larger the death-benefit payout will be. Because the initial premium payment is a considerable amount, the cash value compounds and grows quickly. While that cash value grows, it remains tax-deferred. Generally, the death benefit passes on to beneficiaries’ income tax-free.
The amount of the death benefit can depend on a number of factors, including the size of the single payment and the age of the policyholder. The younger the policyholder, the more time allowed for cash value growth. Single premium policies can accumulate in cash value based on a fixed rate for the life of the policy. Policyholders who want to avoid risk and market fluctuation may decide to choose this option.
Or you can opt for a single premium “variable life” policy that accumulates cash value based on current market rates. This type of policy allows the policyholder to choose the way the funds will be invested and managed but it is also subject to the ups and downs that often occur in the financial market.
Some useful features available in single pay policies include provisions for access to the cash value of the policy in the event of illness, permanent disability, retirement or any other circumstances requiring access to funds. You should consider these wonderful benefits when deciding if single pay life insurance is the right policy for you.