It’s not an every day type of policy for the average consumers, but a single pay life insurance policy has its place. It’s also called a few other names, like single premium life insurance and many companies offer a spin off product which acts in the same way.
A single pay life insurance policy is where you can pay for your life insurance all at one time, up front, so you don’t have to worry about continued payments in the future.
There are a few products which accept this form of payment, and it can save money.
If you like the idea of paying just one time for your life insurance and never having to worry about it again, read on to discover how it can be best applied. There are also other options such as decreasing term life insurance policies if that is something that interests you.
Single Pay Life Insurance Policies
Every once in a while, we get a savvy consumer who is looking to take care of their life insurance needs, but they want to knock it out right away and never think about it again. And, fortunately, these types of one-and-done policies do exist. In fact, they’re common for many different uses.
A single pay life insurance policy is for situations where a person needs a more permanent type of life insurance coverage but doesn’t want the ball and chain of a monthly bill. Quite understandably, it’s just one more bill to have to worry about, and only creates yet another headache. Single pay life insurance policies can be used for:
- Avoiding Long Term Bills
- Estate Planning Techniques
- Legacy Planning Techniques
- Advanced Cost Savings
- Charitable Donations
Because there will be cash held inside of a policy which pays the premiums over time, you won’t be able to use a traditional or standard term life insurance policy. There are types of accounts where you can put money into, almost like an escrow account, which will pay the policy for you, but they rarely yield the best return when you consider other methods.
Cash value life insurance policies make for the best and most rewarding single pay life insurance policies currently on the market. This is because the insurance company has complete control over the money, so they have the ability to make money off of the single premium as it’s inside the policy. Because of this, they’ll ask for less cumulative premium than if you were to pay monthly, or even annually. This can add up to big savings over the long haul.
Something you should be aware of, is the high likelihood you’ll create what is called a Modified Endowment Contract, or MEC, when you utilize a single pay life insurance plan. They can be avoided using advanced techniques when creating the life insurance policy, but they can not only increase costs, but require unnecessarily high death benefit amounts. The advantages of creating a MEC do pan out much better as long as the policy is held to maturity, where the death benefit is still paid out tax free. The cash value portion of a MEC is taxed different than the normal cash value within a normal cash value contract.
For estate plans, a single pay life insurance policy is a great way for the estate to pay for the policy up front. The policy could then be held inside an irrevocable trust, where no one would have to be concerned about the policy lapsing, being altered, or otherwise modified. It can be set up to serve a purpose in a set it and forget it manner.
Legacy planning and charitable giving can also work in a similar way. If you wanted to give, for example, a certain amount of money to a charity, organization, fraternity or university, you could essentially pay a single sum now, get the tax right off for yourself, and the beneficiary can use the money inside a single pay life insurance policy to magnify the gift over time.
If a person is not healthy enough to qualify for decent rates, it may not still be cost effective enough to utilize a strategy like this, but using a survivorship life insurance policy might be a great alternative.
If you think a single pay life insurance policy might be an effective tool, contact us today and we’ll help you sort out the many possibilities and products to suit your needs. These types of policies may also require some advanced tax and legal requirements, so be sure to talk to your tax and legal professionals as well.