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Single Premium Life Insurance: A Quick Explanation

Updated: July 16, 2018

While most of the life insurance options people receive have rolling premiums you must pay on a monthly basis, it is possible to pay the entire policy in one up-front payment.

This type of system refers to single premium life insurance.

With a single premium life insurance policy, you are guaranteed to receive the death benefit for the rest of your life.

This is the case despite single premium life insurance not having any extra premiums after the upfront payment is complete.

But single premium insurance is only a viable option for someone who is wealthy enough to afford paying tens of thousands of dollars up front.

Single Premium Life Insurance Definition

What is single premium life insurance? This is a type of policy where you will make one lump-sum payment to an insurance company. The company will return the favor by providing you with a guaranteed death benefit that never expires.

Why would someone choose single premium life insurance? Because they do not want to bother with paying premiums for the rest of their life.

For example, someone who wants single premium life insurance will pay $25,000 up front for a death benefit of $50,000 or $60,000 from the insurance company. A $100,000 up front payment may provide up to $500,000 in death benefits.

Why would someone choose single premium life insurance? Because they do not want to bother with paying premiums for the rest of their life. There are also some interesting investment options with this type of insurance policy.

Insurance companies agree to these conditions because they will have many decades to grow the lump sum payment through their financial investments, which results in them making a solid profit on each single premium policy.

This is why the difference between the lump-sum premium and related death benefit increases as the lump-sum payment gets higher.

Single Pay Whole Life Insurance

The single pay whole life insurance policy is not only a great way to provide high death benefits to dependents, but it also helps with living benefits.

The entire death benefit is withdrawable for individuals who are diagnosed with a long-term or terminal illness at any point in their life.

Someone who is reaching retirement age may find themselves in a situation where they require stay at a long term care facility. But paying for these services is not easy, especially if you never purchased long term care insurance.

But you can use your insurance policy to withdraw money from the death benefit amount to pay for this care. You can also withdraw the money to meet a number of other expenses.

The entire death benefit is withdrawable for individuals who are diagnosed with a long-term or terminal illness at any point in their life. This is a huge benefit and it is one that most whole life or universal life policies do not include.

The access you receive to the death benefit amount is also tax-free, which results in even more savings when you compare it to other means of obtaining a significant chunk of money.

Single Premium Life Insurance and Investing

There are many ways to use the single premium life insurance policy’s cash value for investment purposes. Because you have paid the premium in one go, you have so much time to ensure this money grows over time.

The first option single premium whole life, where you get a fixed interest rate throughout the policy’s existence.

A single premium life insurance provider will offer two options when it comes to interest rates.

The first option single premium whole life, where you get a fixed interest rate throughout the policy’s existence. This is the more stable option, but can prevent significant gains when the market does well.

In contrast, single premium variable life has an interest rate that fluctuates depending on the market conditions and how the insurance company’s investments perform. You may have years of very high interest rates, but you can also go through periods where no interest is added to the policy.

Individuals who prefer to take more risks with their investments will go for single premium variable life, while those who prefer stability will likely opt for the single premium whole life insurance policy.

Single Premium Life Insurance Companies

Most major providers of life insurance will have an offering related to single premium life insurance. For example, State Farm Insurance provides single premium life insurance. Their policy indicates you must make a minimum payment of $15,000 to become eligible for this type of insurance.

You must have complete faith that the insurance company getting your money will not go out of business or make it difficult for you to obtain the death benefit.

It never makes sense to do business with a company whose reputation you cannot trust, but this is even more pertinent where single premium life insurance is concerned.

Remember that you are paying a huge premium payment in one go. You must have complete faith that the insurance company getting your money will not go out of business or make it difficult for you to obtain the death benefit.

Reputable life insurance companies have been operating for many decades. They have the experience and knowledge of the market to provide the best value policies while still retaining profitability.

There is never a good reason to trust a small, up and coming life insurance company with a single premium life insurance policy. It is a noble idea to avoid the major providers of life insurance, but it could result in you making a massive investment that becomes more trouble than it is worth.

Other Types of Life Insurance Policies

Not everyone can afford a $20,000 or $40,000 lump-sum premium payment when they are at a young age. If you are someone who is not a viable candidate for single premium life insurance, you can consider term life, whole life, adjustable life or universal life insurance.

Universal life and adjustable life insurance are a little more difficult to understand, because they include a lot of flexibility when it comes to the policy’s term and premium rates.

These types of policies all include premium payments made on a monthly or annual basis. The premiums in whole life insurance are set for your entire life, while term life only remains valid for the agreed-on time period.

Universal life and adjustable life insurance are a little more difficult to understand, because they include a lot of flexibility when it comes to the policy’s term and premium rates. But they are a great way for experienced life insurance buyers to customize the policy to their needs.

If you cannot afford single premium life insurance, whole life insurance is the best alternative where you can still receive the same permanent death benefit and added perks of life insurance. But you will have to make premium payments on a rolling basis.