One of the primary advantages of life insurance is its ability to establish an estate that supports loved ones or contributes to charitable causes. Single-premium life (SPL) insurance involves making a one-time payment into the policy, which guarantees a death benefit that remains in effect until the policyholder passes away. In this discussion, we will explore the various types of SPL available, which come with a diverse array of investment choices and withdrawal options. With single-premium life insurance, the cash value accumulates rapidly since the policy is fully funded from the start. The amount of the death benefit is influenced by the initial investment, as well as the age and health of the insured individual. Insurance companies typically assess younger individuals as having a longer life expectancy, allowing the premiums to grow over time before the death benefit is disbursed.
Of course, the greater the initial investment in the policy, the larger the potential death benefit. For instance, a 60-year-old woman might invest $25,000 in a single premium, resulting in a $50,000 death benefit that is free from income tax for her beneficiaries. In contrast, a 50-year-old man who contributes $100,000 as a single premium could see a death benefit of $400,000.
The Benefits
While the death benefits from insurance policies are a great way to support your dependents, it’s also essential to think about any unexpected needs that may come up during your lifetime. You likely recognize the significance of long-term care (LTC) insurance, as the costs associated with long-term care can be quite high. But what if paying the annual LTC premiums feels overwhelming? SPLs might be the answer.
Certain SPL policies allow you to access the death benefit tax-free to cover long-term care expenses. This can help safeguard your other assets from the potentially hefty costs of long-term care. When you pass away, any remaining death benefit will be transferred to your beneficiaries without any income tax. If you don’t end up using the funds, they will go to your loved ones as you initially intended. Thus, your SPL plan enables you to address your long-term care needs while ensuring that the maximum amount of your death benefit remains available for your dependents.
Additionally, many SPL plans permit you to withdraw a portion of the death benefit if you receive a terminal illness diagnosis with a life expectancy of 12 months or less. This added flexibility can make the prospect of paying a large single premium feel less intimidating, especially if your financial resources outside of your SPL are limited.
Conclusion
If you have some extra cash that you don’t need at the moment and are looking for reliable life insurance coverage for your family or a cherished charity, single-premium life insurance could be the perfect choice for you. It’s also a fantastic way to kickstart a life insurance plan for a child.
For example, you might name a child or grandchild as the insured while keeping the policy in your name, allowing you to maintain control over the cash value. Alternatively, you could designate them as the owner to help remove the policy from your estate. Whichever way you decide to utilize a single-premium life insurance policy, it’s important to assess your financial situation and any other retirement options you have in place to tailor the policy to your specific needs. Additionally, make sure to compare single-premium offerings from various companies to find the best life insurance policy available.