WELCOME TO SINGLE PREMIUM LIFE INSURANCE
If the liquid assets are not needed for retirement or investments and are earmarked for heirs or your favorite charity, then exploring single premium life insurance makes sense and can serve as a grand protector.
Real Life Scenarios and Living Benefits
SCENARIO ONE – COVERING ESTATE TAX
Anyone who is subject to estate tax or death tax will find single premium life insurance extremely useful.
One of my clients, Elizabeth, age 72, with net worth of a little over $12M had a comfortable life with substantial income coming from various sources. Her son, Alex, the only child by her late husband, was a brilliant young man who took over the family business upon father’s death and kept it running successfully. Most of the family’s assets were tied up in family business or other investments.
Upon her demise, Elizabeth’s estate would trigger an estate tax in the range of $5M.
To make sure that when the time comes Alex should have that much cash to pay Uncle Sam, she purchased a single premium life insurance plan, which as a fully-funded life policy covered her for the rest of her life (till age 100). Since the ladies in her family did not live beyond age 85, she knew the permanent life insurance she just took would do its job.
Elizabeth got approved by an A+ rated carrier at a Standard risk and paid only $2,275,160 to receive a single premium universal life insurance policy of $5,000,000. Now, that was a substantial gain. The best part was the death benefit would go to the beneficiary income tax free!
This would allow Alex to continue his family’s legacy without going through financial hardship upon the death of his last parent.
SCENARIO TWO – CREATING AN IMMEDIATE FINANCIAL LEGACY
Bill at 56 invested a lump sum of $229,475 in a single premium whole life insurance plan, which got him lifetime coverage (till age 120) of $500,000. This was a cash value policy, fully-funded and never to lapse. I could easily get him the same coverage for less if he did not want cash values. Now, if Bill died one minute after paying his single and final premium, or 63 years 364 days later, the plan would offer his beneficiary an income-tax free death benefit of $500,000.
These plans can work great for children also.
A 10 years old male child can get $200,000 worth of single premium whole life insurance with cash values for only $19,126; and a single premium universal life insurance for only $12,209.50.
A 10 years old female child can get the same $200,000 coverage for $16,592 and 10,490.50 respectively.
Usually a parent can buy only half the death benefit on a child compared to his or her own policy. But that is also a matter of context in which a large life insurance policy is purchased on a child, who, for example, if you know will go to college and will most probably borrow loans for education, a $200,000 policy does not sound high. If the unthinkable happens to the child during college, the income-tax free life insurance proceeds will allow you to take care of loans and other financial burdens.
Not only that, since beneficiaries on a life insurance policy can be changed anytime, in future the spouse can be benefitted because of the presence of life insurance plan that will continue covering the insured.
Please keep in mind that single premium whole life insurance plans come as participating and non-participating. I and my affiliated Financial and Insurance Advisors like offering our clients with both the options. The only thing we avoid offering is variable life insurance. We believe in delivering guarantees with no variables.
SCENARIO THREE – LIVING BENEFITS RIDERS
Most insurance carriers offering single premium life insurance plans also offer certain riders to go along with them. These riders add specific value to your plan and can be useful to the insured while living.
1. Accelerated Benefits Rider (ABR)
In some states, a life insurance policy may include Accelerated Benefits Rider at no additional cost. This Rider provides the option to accelerate a portion of policy proceeds if the insured is terminally ill with a life expectancy of 12 months or less.
2. Long Term Care Rider
This rider provides a financial cushion for the family if and when the need for Long Term Care arrives. By opting for this rider, whenever available, the insured ends up receiving a combination benefit of life insurance and Long Term Care insurance in a single policy. It is definitely worth considering. Also remember, the benefits come to you tax-free.
The story of Jody who never thought this could happen to her, coms to mind. When she was stuck by a paralyzing stroke at the age of 67, the world around her became dense and dark. This Long Term Care Rider came to her rescue and saved her from spending her lifetime savings in annuities, Roth IRA and other investments. Long story short, she escaped from becoming bankrupt due to a decision she could afford to make when purchasing her life insurance policy about 9 years back. I am glad I persuaded her to consider the LTC rider.
For now, these are two basic living benefits. An insurance company may decide to come up with some other fancy rider in future. It is always a good idea to talk about available riders when purchasing a single premium life insurance plan.
THE GUARDIAN ANGEL