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DEFINITION of 'Single-Premium Life Insurance'

An insurance plan in which a lump sum of cash is paid up front to guarantee payment to beneficiaries. Because single-premium policies are instantly fully funded, the money invested builds up rapidly, making for a potentially sizable benefit even in the event of the policyholder's sudden death. Following the Tax Reform Act of 1986, this type of insurance policy became a popular tax shelter.

BREAKING DOWN 'Single-Premium Life Insurance'

There are a couple of popular single-premium policies: 1) Single-premium whole life, which offers a fixed interest rate paid by the insurance company which taken on any potential risk rather than the policy holder; and 2) Single-premium variable life, which allows policy owners to select from a menu of professionally managed financial portfolios.

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