Single Pay Life and Your Legacy
Single premium life insurance is one of the most lucrative life insurance products in the market today and has seen increased popularity over the past several years. With single premium, or single pay life insurance you can make one lump-sum payment and receive a paid in full guaranteed life insurance policy. This product is used primarily for estate planning purposes as the surrender value shrinks over the course of time. The beneficiaries (parties that may receive the death benefit) are often children, other relatives, universities, charities, etc. This product provides policy holders with the ability to leave behind a large, guaranteed sum of money upon their death, and only pay a fraction of the death benefit.
The biggest positive regarding single premium life insurance is the overall return on investment comparative to other products on the market. Because the insurance company is collecting all of their money up front, they are able to get higher returns at a faster rate by investing the money than they would if they had collected the money over a longer period of time. Because of this reason, it is more lucrative for both the insurance company AND the policy holder. So, what multiple of your money can you expect to receive? Well, that depends upon the amount of money you’re willing to pay, your age, and the results of your medical exam. For instance, we quoted a client of ours in Indianapolis, Indiana this past summer. He was exactly 50 years old and of tip-top health. He put $40,000 into a single premium life insurance policy and has a guaranteed death benefit of 200K, even if he were to die tomorrow. That is some serious return on your investment!
Another positive of this product is the fact that the death benefit isn’t taxable. So, if the money is left to your children, they will not be taxed on the amount received. Furthermore, if your death benefit is listed as a charity or other non-profit organization, the premium you paid is actually tax deductible for the year it was paid. For instance, if the gentleman spoken about previously wanted to gift money to Indiana University upon his death, he could simply make them the beneficiary. Upon death, the university would receive $200,000 (not knowing he only paid $40,000) and his $40,000 would be tax deductible as a charitable contribution the year it was paid. This is just another great benefit of single premium life insurance.
By now you may be contemplating the negatives of single pay life insurance… The most obvious negative of single pay life is that you have to come up with a large sum of money. It is the difference of buying a car with cash instead of financing it. It hurts more up front, but you save a lot more in interest payments over the course of time. Something to consider, which isn’t necessarily a negative but more a precaution, is that this product is not supposed to be used as an investment! The cash value, or surrender value, diminishes over the course of time and will not appreciate in value. This product is best used for estate planning, NOT an investment vehicle. As long as you know this going into it you shouldn’t be hit with any surprises.
There are more factors, statistics, and illustrations that our licensed agents could walk you through, but this article gives you the overall breadth of the single premium life insurance product. If you are looking to leave a lasting legacy at a fraction of the cost, this is a good product for you. Many companies offer this product, but we have some of the best offerings in the market place right here at our agency in Indianapolis.