Set It & Forget It: Single Premium Whole Life Insurance

Let’s face it, there are a lot of different life insurance policies out there to choose from – in fact, there are so many that it can become overwhelming trying to find the right one for you. How do you choose? Start by narrowing it down this way: if you want life insurance for a specific amount of time, you can choose a term life policy, but if you want a more permanent policy, whole life insurance is the way to go. 

Whole life insurance is the most common type of permanent insurance policy, and rightfully so- there are so many great benefits to these policies. If you decide to go the whole life insurance policy route, the next step is to check out all of the different whole life insurance policies that are available. You can choose from policies like level premium whole life, limited payment whole life, and single premium whole life insurance, which is the type of policy we will focus on below, so you can decide if it might be right for you.

Single Premium Whole Life Insurance

hundred dollar bills in a large stack
Single premium whole life ,gives you the opportunity to pay for your policy in a single upfront lump-sum.

Single premium whole life is permanent life insurance that covers you until you die. But unlike with other types of whole life insurance, with which premiums can be paid on a monthly or annual basis, with single premium whole life, you can pay for your policy in a single upfront lump-sum. In return, you receive a guaranteed death benefit amount; these policies also have a cash value that will grow over time, and that you can borrow against. 

For example, a single premium whole life policy might have one $25,000 premium at the start of the policy and no more payments will be needed after that. When it comes to how much the death benefit will be, it will depend on the amount of money invested, as well as your age and health when you purchase the policy. 

The Benefits

Having the ability to pay your premium off at once and not having the hassle of monthly or annual payments is a great plus, since you will not have to worry about forgetting or being unable to make a payment and losing your policy forever. Not only that, but there are tax benefits to whole life: you can pass on death benefits to your family tax-free without the time delay and expense of probate. In addition, in some cases, you will have tax-free access to the death benefit to cover any long-term care costs (although there are cases when you might have to pay some tax, more on that below), which can protect your other assets so you do not have to dip into them. If you do choose to use part of your death benefits for long-term care expenses, the death benefit remaining in the policy when you die will pass income-tax free to your beneficiaries. And if you don’t use any of it, the money will go to your loved ones just as you had originally planned.

Another benefit to making one upfront premium payment is that the cash value of the policy will be larger than with other types of policies, because the policy is fully funded from the start of coverage, so the value can grow more quickly. For example, if your premium is $30,000, some of this will go to fees, and some of it will  go into the cash value: if the cash value is $20,000 (after the fees are paid), and you were guaranteed a 3% interest rate,  the policy will grow $600 in the first  year. 

How You Can Withdraw Money

atm machine
If you want to withdraw money, you have to take out a loan that can be up to 90% of the policy’s cash surrender value.

The only way to withdraw money from the cash value of a single premium whole life insurance policy is by taking out a loan. The loan amount can be up to 90% of the policy’s cash surrender value (cash surrender value is the sum of money an insurance company pays to the policyholder or account owner upon the surrender of a policy/account). Insurance companies usually have a minimum amount that you can take out, so be sure to check that out. You can typically withdraw 10% of the premiums paid, or 100% of the policy’s gains (whichever is higher) in each calendar year without having to pay a surrender charge. 

It is important to note that if you withdraw cash from the policy, either as a loan or partial surrender, there will be some tax implications. Because this type of policy is considered a modified endowment contract (MEC) by the IRS, meaning that it has been funded with an amount of money that exceeds federal limits on policy funding, withdrawals are subject to income tax on the earnings. Typically there is a 10% IRS penalty on all gains withdrawn or borrowed before age 59½. You will also have to pay income tax on those profits, and if you cash in the policy, the insurance company might hit you with a surrender charge.

Is This Type of Policy Right For You?

Single premium whole life insurance is best for someone who has the ability to pay their premium all in one shot, and who wants a tax-sheltered legacy that their family can receive when they are gone. These policies are a great way to maximize your cash value growth so you can use that money as you get older and possibly require long-term care. If you are considering a single premium whole life insurance policy, you should first consider if you can afford it, how much coverage you will need, and any riders you would like to add on. 

The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

About The Author:
Cassandra Love

With over a decade of helpful content experience Cassandra has dedicated her career to making sure people have access to relevant, easy to understand, and valuable information. After realizing a huge knowledge gap Cassandra spent years researching and working with health insurance companies to create accessible guides and articles to walk anyone through every aspect of the insurance process.

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