If you’re a person who likes to get things done and over with but at the same time looks for the greatest benefit then learning about single premium life insurance might be for you. Personally, this is one of my all-time favorite types of life insurance products to recommend as long as it is affordable for my client. There are just too many good reasons not to consider single premium life insurance but the key is also getting the right type of product and picking the right company based on your qualifications. You can end up with a various different life insurance options that offer single premium payment option but some are not as good as others. It is also important to find a company that will give you the best rate based on your qualifications since each company will look at you differently. In this article, we will review everything you need to know about single premium life and explore the different types of permanent life insurance plans.
What is a Single Premium Life Insurance Policy?
A single premium life insurance policy is simply a type of permanent life insurance plan that gets paid up with a one-time payment. It can be a whole life, universal life, variable universal life or any other permanent plan. Once an individual pays the premium they will have a policy that is paid up and they will no longer have to worry about paying the policy even though they are now covered for life. This is pretty awesome and there are many more pluses to this pay option that you’ll learn about.
Benefits of Single Premium Life
So what are some of the benefits of going with a single premium life insurance option? Well, there are few great ones:
- Savings– Yes, you will save a ridiculous amount of money by paying one lump sum payment. I have personally seen people save a few hundred grand by paying the policy one time versus monthly for the rest of their lives. See life insurance companies invest your premiums to make a profit and to meet any claims they get so you’re allowing to this immediately with a large sum and less administrative functions, therefore, you get all the savings.
- Compounding– We all know that compounding is one of the best discoveries man has ever made. Because single premium life is associated with permanent plans we can expect to get cash value growth. What most people don’t know is that this growth is usually delayed until 5th or 6th year of the policy because it gets used for agent commissions and administrative charges. So most people who are not paying with one-time payment are delaying compounding. With a single payment, you start getting compound interest on a large sum so your cash value is going to look a lot better than someone who is paying monthly.
- Leverage– Another great plus of single premium policy is that you basically doubled, tripled or in some cases quadrupled the amount of money your family gets. For example, let’s say that you’re a 60-year-old successful female business owner and you’d like to leave a large sum of money to your family. Well, a single premium policy allows you to pay a few hundred thousand to leave around $1 million to your loved ones. That’s a trade I’ll take any day. If you’re not familiar there are a lot of these type of transactions since the returns your getting are too good to pass up.
- Peace of Mind- This may not be as great of a benefit as the others but we still need to count it. When you have a paid-up life insurance policy you no longer have to worry about whether your family will be okay or not. You will also not have a need to stress about making your payments if you run into financial difficulty. There is nothing better than having life insurance checked off your list permanently.
Few Downfalls of Single Premium Life
Just like all great things in life, there are some shortfalls. Now, this type of life insurance doesn’t have many and they may not matter to you but we must address them. Here they are:
- Cost– Not many people have a large sum of cash laying around to pay a one-time big premium. So in this sense, the policy can be a bit of an inconvenience and not accessible to everyone. If you can’t afford a one-time premium you can consider a 10 pay or 20 pay option where you can have the policy paid up in a decade or two which will still give you greater benefit than paying monthly.
- Tax Implications– When you fund the policy with a large amount of money it has a high possibility of becoming a modified endowment contract. The simple way to understand this is that life insurance cash value growth is tax-deferred and Internal Revenue Service created certain guidelines of funding so people don’t abuse life insurance for this purpose. Basically, if you take the money that you put in out within a certain time frame you’ll get hit with a heavy penalty. Once again this may not be a downfall for you if you were getting life insurance for protection and not to evade taxes.
Policy options
When you decide to go with a single premium life insurance plan you need to understand that a single premium is just a pay option for a permanent life insurance. There are a few options when it comes to permanent life insurance and you need to make sure you do your homework before you settle on one. We’re not going to get into tiny details of each plan but you basically have a choice of going with Whole Life, Universal Life, Indexed Universal Life, Variable Universal Life or Guaranteed Universal Life. If you’re looking for a policy that has fixed death benefit along with guaranteed returns and premiums then look at Whole Life Insurance. However, the best plan for people looking to get the security that offers similar benefits as Whole Life is a Guaranteed Universal Life Policy.
In fact, if you’re looking to get permanent life insurance and don’t have an obsession with the cash value growth this is hand down the best choice. If you’re looking to also get some investment returns from your policy then you need to decide between Indexed Universal Life or Variable Universal Life. The big difference is that Indexed Universal Life is ideal for passive investors and offers a small guaranteed rate regardless of how the market performs. Now with a Variable Universal Life, you can have a higher risk but also an unlimited upside so it is ideal for active investors that want tax advantages of life insurance but the ability to pick any investments for their cash value.
Wrap Up
As you can tell we strongly support the purchase of a single premium life insurance policy and why wouldn’t we when there are so many benefits. You save a ton of money compared to paying regularly, compounding starts immediately so you get more returns, you create immediate leverage on your money and you’ll never have to worry about life insurance ever again. Of course you need to be aware of the fact that the policy may cost a lot of money and you’ll have some tax penalties if you decide to pull the cash out of the policy in the early years. You need to also be smart about which policy to pick and go with the right company.
One of the best things you can do when shopping for any life insurance policy to make sure you get the best deal and advice is to work with an experienced independent life insurance agency. An independent agency works with all the top rated life insurance companies and will shop around based on your qualifications to get you the best rate. They also have a keen understanding of what companies have strong niches and which ones have better plans.
Luckily for you we are the best independent online life insurance agency. We work with over 60 top rated life insurance carriers and use state of the art tools to allow you to shop around with a few mouse clicks. In addition to that we provide VIP service to all our clients and are available for the life of the policy. Instead of waiting on hold with the insurance company we can help you out right away. If you’re ready to purchase a life insruance policy and work with the best call us today at 888.492.1967. Welcome to InsureChance!
