Guaranteed Financial Legacy Single Premium Life Insurance Plans are designed as permanent policies that, based on selection, may or may not have cash values. Since they cover the insured till the age of 100 and sometimes beyond, there is an inherent guarantee that at one point in time the life insurance proceeds will surely reach the intended beneficiary.
LIFE INSURANCE AS FOUNDATION No financial planning is complete without a properly structured life insurance policy. Generally, the premiums depend upon the insured’s age, health, the amount of coverage, the length of time and the activities that cause risk to life. Most plans are subject to underwriting, age and state availability.
- A lifetime of coverage guarantees a financial legacy.
- Tax-deferred growth of cash values in whole life plans.
- Single Payment of premium is mostly a cost-effective way to buy life insurance.
- Peace of mind for a lifetime.
SINGLE PAY LIFE INSURANCE PLANS
Real Life Scenarios and Living Benefits
SCENARIO ONE – COVERING ESTATE TAX
Anyone who is subject to estate tax or death tax will find single pay life insurance extremely useful.
One of my clients, Elizabeth, age 72, with a 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 the 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 (until 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 federal 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. We 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 of 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 a 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. We like to offer our clients all kinds of options available out there.
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 comes to mind. When she was struck 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 life 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. We are glad that we could persuade 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.
Single Premium Life Insurance Explained
Single premium life insurance plan is a fully-funded life insurance policy. A lump-sum of cash is paid into the policy to create a death benefit that under guaranteed assumptions remains level at all times and maintains an increasing cash value. The amount of coverage usually is directly proportional to the amount of initial contribution, your age, your health, and lifestyle.
Let’s look at an example. If a non-smoker male in perfect health at age 50 contributes $163,295 into a Single Premium non-participating Whole Life Insurance plan with cash values, his immediate coverage could be as much as $500,000. That is an instant gain of $330,000. If he dies the next day or any time till the age of 121, his beneficiary will receive a total of $500,000 generally income-tax-free, if structured properly. The policy also gains deferred cash values with time. If at the same time you decide to pay annually for this $500,000 whole life policy, you will end up paying $400,000 over a period of fifty years for the same amount of coverage. So, by paying a single premium for a $500,000 policy there is a substantial saving of $236,705!
A female can get the same coverage for a single premium of $146,685.
Now, if a male at age 50 doesn’t care for cash values and takes Guaranteed Universal Life (GUL) Insurance instead of a Whole Life, he will contribute only $118,911 for a $500,000 death benefit. He will pay less but will have the same amount of guaranteed coverage until the age of 121. That’s how simple it is! Women usually get more for less. It is mainly due to the mortality factor. They tend to live longer than men. A perfectly healthy female at age 50 can get a $500,000 single premium guaranteed universal life plan for only $101,605.
Simply speaking, the best single premium life insurance is the one that offers you the most coverage for a single payment and covers you for an entire lifetime. This may work differently for those looking for long term care rider on the policy.
Types of Single Premium Life Insurance Plans:
- Single Premium Whole Life – Participating and non-participating (SPWL)
These are both cash value plans. One is more aggressive than the other but both last a lifetime (age 121).
- Single Premium Guaranteed Universal Life (GUL)
GUL policies do not accumulate cash as they go. As a result, single premium universal life plans cost less than whole life or cash value plans. The target is to have a lifetime of coverage and receive the most in death benefit the money can buy.
- Single Premium Universal Life with Index Option
These plans allow risk-free participation in S&P 500 performance. So the dividends are index-based and not guaranteed.
- Single Premium Term Life Insurance
This is a very special and limited option. A few of the insurance carriers accept advance single premium for a term life insurance plan. By doing so, the insured ends up with substantial premium savings. For example, if a 40-year old male in good health can get a 30-year term life insurance for an annual premium of $980. The cumulative premium of 30 years will be 29,400. If instead of paying annually, he chooses to pay a single advance premium of $19,784.70, he will end up saving $9,615.30. The quoting tool online does not offer this option. If you are interested, please give us a call.
- Single Premium Variable Life (VUL)
Please keep in mind that very few life insurance companies offer dedicated single premium life insurance plans. To find the best single premium life insurance option, please allow your agent or advisor to do some digging for you. An experienced licensed professional can easily custom-design a suitable single premium life insurance.
TAX TREATMENT OF SINGLE PREMIUM LIFE INSURANCE PLAN
The single premium contribution that you put in this plan grows tax-deferred. You will only pay tax on the gain if you decide to withdraw or borrow from the policy. However, there could also be an IRS penalty as these policies are usually considered Modified Endowment Contract. Just so you know that a single premium whole life plan can be structured as non-MEC.
From covering the cost of a decent burial to protecting your estate from inheritance tax, single premium life insurance is an effective and powerful solution for creating an immediate estate through life insurance. Click here for your real-time rates.