quick Facts
- With single premium life insurance, you make one large down payment to fund the policy
- Single-premium life insurance policies allow death benefits to be available immediately, but there are tax penalties if you borrow out of cash value.
- Single-premium life insurance policies cannot be added in the future, so you cannot change the benefit later
Single premium life insurance allows you to pay your entire policy up front. However, lump sum life insurance is not for everyone because the cost is much higher than a traditional policy, and getting to the cash value has tax consequences.
How does single premium life insurance work? Continue reading to determine if single premium life insurance is right for you.
Understanding individual premium life insurance
While there are many types of life insurance, most policies require you to pay for your policy monthly or annually. However, single premium life insurance requires that you pay for your policy up front.
How does single premium life insurance work? Single premium life insurance policies provide a guaranteed death benefit and the ability to borrow against the policy if needed. However, these policies are more expensive than the traditional policies but can provide peace of mind as they are fully funded.
Can life insurance be withdrawn if I pay in advance? Yes, however, there are severe tax penalties if you withdraw money from your policy. The IRS considers single-premium life insurance to be a modified gift contract because the initial payment exceeds tax limits. In addition, you may be charged a surrender fee if you remove all funds from the policy.
Choose a different type of policy if you anticipate needing cash value life insurance and avoiding heavy taxes.
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The pros and cons of individual life insurance
Single premium life insurance is beneficial in certain circumstances if you have the money to find the policy upfront.
The benefits of a single premium life insurance policy include:
- There are no monthly or annual payments
- Fully funded policy from the start
- Ability to borrow against cash value if required
- Deferred taxes on investment growth
Although a single premium insurance policy ensures that your death benefit is fully funded, there are some drawbacks.
The cons of single premium life insurance include:
- Great initial investment
- Tax implications if you borrow against value
- Overpay if you die unexpectedly
- Inability to make additional contributions to increase benefits
Although this type of insurance does not provide life insurance for living benefits, there are ways to borrow against the cash value for long-term care or other needs. If you think you’ll need access to cash value, learning how to borrow money from life insurance is essential.
The average cost of life insurance for an individual premium
There are many factors that influence the cost of life insurance, such as age, health, and habits such as smoking. Therefore, rates vary widely based on who is insured.
This table shows average single-premium life insurance rates by age.
Single premium and advance payment life insurance policy
| coverage amount | One premium cost |
|---|---|
| $100,000 | $22,000 |
| $250,000 | $45,000 |
| $500,000 | $81,500 |
| 750 thousand dollars | 120 thousand dollars |
| $1,000,000 | $152,000 |
Your down payment increases dramatically based on coverage. Remember, you may end up paying more than a traditional policy, especially if you die earlier than expected.
Use our Single Premium Life Insurance Calculator to determine if this type of coverage is best.
Single premium life insurance coverage options
While coverage options vary by insurance company, two types of single premium insurance are the most common.
The first option is a single premium whole life insurance which offers a fixed rate of interest that guarantees steady investment growth.
Another popular option is the single-premium variable life insurance which allows you to invest in stocks and a fixed account to further grow the investment. However, variable life insurance can be very risky since you can lose money on your investments.
While there are other options, not all types of insurance are available. For example, you may not be able to get a single premium guaranteed life insurance because there is a waiting period before your policy goes into effect without health checks.
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The best single premium life insurance companies
The best individual life insurance provider company will vary based on the coverage, rates and access you need. For example, State Farm life insurance is highly rated for its excellent customer service and diverse coverage options. However, coverage is only available in some places, and you can’t get quotes online.
This table shows some of the best single premium life insurance companies.
Compare coverage of single class life insurance companies
| Company Name | Product Show | Support features | Positives | cons |
|---|---|---|---|---|
| state farm | – A wide range of product types, including life insurance with a single premium – Guaranteed cash value growth tax deferred Provides online quotes for life insurance policies |
Online quotes for some insurance products – The ability to make changes through an agent or by mail |
High ranks in customer satisfaction and financial ratings Offers a range of products that suit different budgets and needs – Provides quotes online in minutes |
Coverage is not offered in Massachusetts – Provides only lifetime quotes online Changes to life insurance must be made through an agent or by mail |
| Northwestern Mutual | – A range of life insurance products, including single premium life insurance – Option to receive money in the form of a lump sum or installments, investment account, or combination – Dividend distribution for all types of documents |
Online quotes and applications are not available Most applicants must undergo a medical examination Limited financial resources on the Internet |
High scores in customer satisfaction and financial stability Low percentage of customer complaints Offers a comprehensive approach that includes insurance and investments |
Online quotes and applications are not available Most applicants must undergo a medical examination Limited financial resources on the Internet |
| MassMutual | – Guaranteed lifetime admission for those between the ages of 50 and 75 Offers a range of products and services Low percentage of customer complaints |
– There is no rate calculator online High minimum coverage amount for some policies A medical examination is required for most policies |
Most affordable life insurance policy provider High degree of financial stability Offers a range of products and services |
– There is no rate calculator online High minimum coverage amount for some policies A medical examination is required for most policies – Consumers are not allowed to apply online |
The best way to find the right company is to compare several single premium life insurance quotes. Compare prices, ratings, and coverage to find the most affordable life insurance.
People who benefit most from single premium life insurance
You may need single premium life insurance if you need immediate coverage to provide for a child with special needs or if you want to use an estate planning insurance policy. Consult a financial planner to determine if a single premium insurance policy is your best tool.
Bottom line: Single premium life insurance
A single premium life insurance policy requires a large down payment, but the policy is funded immediately. While you can borrow against the policy, you may face heavy taxes and penalties.
Although single premium life insurance isn’t for everyone, it can be an excellent way to provide for family members and estate planning care.
Frequently Asked Questions
Is life insurance for a single premium expensive?
Single premium insurance is more expensive than other coverage options and requires a large down payment when you sign up for the policy.
Who should not take out single premium life insurance?
You should not take out single premium life insurance if you cannot afford the huge lump sum payment or you may need to access the cash value later because you will be subject to tax penalties.
Is single premium life insurance and whole life insurance the same?
No, single premium life insurance refers to your policy being paid up front and the whole life is about the applicable policies as long as you pay the premiums. Single premium and lifetime are two types of permanent life insurance. However, most life insurance policies are paid monthly or annually.
Can you borrow life insurance in a single premium?
Whether or not you can borrow life insurance at a single premium depends on the policy. While many insurance companies allow you to access the cash value, this is not always the case.
Do I get my premium back when I cancel my single premium life insurance?
You are likely to be subject to assignment fees if you cancel single-premium life insurance, especially during the first few years. However, the rules vary by insurance company.
What are the pros and cons of single premium life insurance?
Single premium life insurance benefits include instant financing of the policy and the ability to borrow against cash value. However, the disadvantages include hefty taxes if you can access the cash value, inability to scale up contributions, and a large initial cost.
What is the difference between single premium life insurance and annual premium life insurance?
You pay the entire premium at once with a single life insurance policy. On the other hand, an annual life insurance policy means that you make payments every year.
Is life insurance for a single premium taxable?
Although the death benefit is not taxable, you may face significant taxes and penalties for borrowing against the cash value. This type of policy is considered as life insurance for the modified endowment contract which comes with increased tax bases and penalties.
Life insurance quotes are always free.
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Benjamin Carr
Former state farm insurance agent
Benjamin Carr has worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and advised his clients about their life, health, and property/accident insurance needs. Assessing risk and helping people find the best coverage for their needs is his passion. He appreciates that insurance is designed to protect people, especially in times of…
Former state farm insurance agent
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