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The main benefit of life insurance is to leverage funds to create an estate that can provide for survivors or to leave something to charity. Single-premium life (SPL) is a type of life insurance in which a lump sum of money is paid into the policy in return for a death benefit that is guaranteed to remain paid-up until you die. Here we look at some of the different versions of SPL available, which offer a wide range of investment options and withdrawal provisions.
With single-premium life insurance, the cash invested builds up quickly because the policy is fully funded. The size of the death benefit depends on the amount invested and the age and health of the insured. From the insurance company's perspective, a younger person is calculated to have a longer remaining life expectancy, giving the funds paid in the premium more time to grow before the death benefit is expected to be paid out. And, naturally, the larger the amount of capital you initially contribute to your policy, the greater your death benefit will be as well. For example, a 60-year-old female might use a $25,000 single premium to provide a $50,000 income-tax free death benefit to her beneficiaries; whereas a 50-year-old male's $100,000 single premium might give a $400,000 death benefit.
Living Benefits
While the death benefits of insurance policies provide you with an efficient means to provide for your dependents, you also need to consider unexpected expenses which can crop up in your old age. You probably understand the importance of long-term care insurance, as long-term care can often turn out to be an expensive predicament. But suppose you have put off buying this important coverage because you can't bring yourself to pay the annual premiums? SPLs can offer a solution. (To learn more, see Long-Term Care Insurance: Who Needs It? and Taking The Surprise Out Of Long-Term Care.)
Some SPL policies will give you tax-free access to the death benefit to pay for long-term care expenses. This feature can help protect your other assets from the potentially overwhelming cost of long-term care. The death benefit remaining in the policy when you die will pass income-tax free to your beneficiaries. And if you don't use any of it, the money will go to your loved ones just as you had originally planned. Therefore, your SPL plan allows you to cover your long-term care needs as required, but still leaves the maximum possible amount of your death benefit intact for your dependents.
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