SINGLE PREMIUM WHOLE LIFE INSURANCE
One Lump Sum Premium Payment to Create An Income Tax Free Death Benefit with Tax Advantaged Cash Value Growth
What is Single Premium Whole Life Insurance?
Single premium whole life insurance is an extreme form of limited pay whole life insurance where a large one-time-only premium is made at the beginning for the policy is used to fully fund the policy. The guaranteed interest rate the contract will earn will allow the cash value to equal the death benefit at age 100. During the life of the policy, the cash value is available to the policyowner for withdrawals, loans or they can surrender the policy to receive the cash value.
However, because a single premium whole life insurance is typically classified as a modified endowment contract, loans and withdrawals are taxed differently (last in/first out) than with other forms of life insurance (first in/first out.)
Who Buys Single Premium Whole Life Insurance?
People who typically buy Single Premium whole life insurance have estate planning objectives with the tax-free death benefit these policies create. These objectives may involve leveraging their wealth to ensure that a defined amount of inheritance or charitable gift is achieved regardless of the insured’s actual life.
Other uses of single premium whole life insurance leverages optional benefits these contracts can have such as long-term care insurance that can provide instant insurance benefits that greatly exceed the value of the single contribution.
Understanding why one would purchase a single pay whole life insurance policy, which requires significantly more than term life insurance, may be difficult to understand without a comprehensive financial plan.
Decision Tree Financials’ Financial Freedom Process can help you understand the best strategies to accomplish all of your financial goals and find out if a single pay whole life insurance contract is the right product for you to own.
