Co-Founder, Coastal Financial Partners Group, California
Single premium life insurance involves paying one premium and no more while having life insurance coverage for life. It will be a modified endowment contract for tax purposes meaning it still has favorable tax treatment on the death benefit but annuity-like treatment on cash values. You don't want to use single premium life if you plan to accessing cash value later.
There are a wide variety of product types and different reasons to use them. A popular method within a narrow niche is to buy single premium life instead of an annuity if you are unlikely to need to access it for income in retirement as that the tax treatment and value of the asset at death will be more favorable. Another is to buy a single premium guaranteed universal life policy and fund with a single premium. The only issue is that reserving changes and low interest rates have impacted insurers so severely, this is an inefficient method of estate liquidity funding. Level pay guaranteed universal life is far better.
Single premium life insurance, in simple terms, means you make a one-time payment. If designed properly, the life insurance coverage will last an entire life. You can make this single payment through traditional methods such as a check or even by combining the cash value of other existing life policies. The typical purpose is to maximize the death benefit while eliminating future payments.
The typical design of these policies is not favorable to accessing cash value once the payment is made. However, a recent trend has been to combine this single premium method with a rider that allows the owner to access the death benefit while the insured person is alive should a need arise to cover a home healthcare expense. This strategy provides more flexibility to the standard payout upon death.
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There are a wide variety of product types and different reasons to use them. A popular method within a narrow niche is to buy single premium life instead of an annuity if you are unlikely to need to access it for income in retirement as that the tax treatment and value of the asset at death will be more favorable. Another is to buy a single premium guaranteed universal life policy and fund with a single premium. The only issue is that reserving changes and low interest rates have impacted insurers so severely, this is an inefficient method of estate liquidity funding. Level pay guaranteed universal life is far better.
The typical design of these policies is not favorable to accessing cash value once the payment is made. However, a recent trend has been to combine this single premium method with a rider that allows the owner to access the death benefit while the insured person is alive should a need arise to cover a home healthcare expense. This strategy provides more flexibility to the standard payout upon death.