The Benefits of Investing in Single Premium Life Insurance
Could your loved ones survive comfortably without your income? Nobody wants to plan for death, but it matters. The people you care about could be left upset and financially stressed. Choosing the right insurance makes a difference in the quality of their lives. And it also offers peace of mind for you and your family today. Discover the benefits of investing in single premium life insurance.
Basics About Single Premium Life Insurance
People purchase single premium life insurance to create an estate. And this money can be used for survivors to pay bills or as a donation to a favorite charity. With single premium life, money is paid into the policy for a guaranteed death benefit until you pass away. There are various investment options and withdrawal rules, based on the type of policy you choose.
Building a Death Benefit
The size of the death benefit paid out when you die depends on specific factors, such as your age, your health, and how much was paid into the policy. Most of the time, these policies are paid in one lump sum, but in other cases they can be purchased with fixed premiums over a predetermined number of years. This can be done in two years or for much longer. The nice thing is that the premiums never increase and are set at policy issue.
The death benefit with most policies is guaranteed after the policy has been approved and the first premium has been made – whether it be a lump sum or made with payments over time. Most policies will guarantee the death benefit up to age 120 so there is little worry the policy will lapse. (Some policies do expire before age 120, so be sure to let you agent know what you’re looking for.)
And some policies offer different investment options that allow for future growth. Your death benefit is always guaranteed, but if interest rates increase or certain indexes perform well, then the death benefit and cash value can grow over time. You or your heirs can end up with more than what was promised.
Single Premium Life Insurance and Long-Term Care
While single premium life insurance is meant to take care of loved ones when you die, there are times the funds can be used when you are alive. If you require long-term care, funds can be drawn from the policy and accessed tax-free in some cases. And the remaining funds are usually income tax-free for your dependents after you die.
Having these funds available during your life can protect your assets if you require long-term care. Many policies offer Accelerated Death Benefit riders. Should the owner by chronically ill, then a certain percentage of the policy will pay out each year to cover health related expenses. This is a great feature for those who are on the fence about long term care, but also interested in leaving a legacy for their families.
Of course, another option is to invest in a separate long-term care policy. Having a tax-qualified long term care policy can ensure the full death benefit from your single premium life insurance will be paid to your beneficiaries after you die. If needed, the two separate policies can work in tandem with one another as well.
Consider Terminal Illness
Some single premium life insurance plans let you gain access to a portion of the money if you are diagnosed with a terminal illness. Ask your insurance agent about these plans. A terminal illness means your life expectancy is 12 months or less. Having the ability to cash out some of these funds can make the rest of your life, and the lives of loved ones caring for you, a lot easier. Most insurers will allow large portions of the policy to be withdrawn in such circumstances.
Three Basic Types of Investments
There are three basic types of accounts when you choose single premium life insurance. In order of least to most risky, they are whole life, indexed life and variable life. Whole life offers a fixed interest rate, indexed policies safely index into the markets while variable life invests in stocks, bonds and mutual funds. One size does not fit all. Your risk tolerance will help you decide which one is right for you.
Think about market changes, your other assets, and how the cash value of the policy will be used. A fixed interest rate provides a higher level of stability but a variable rate can result in greater gains, depending on the market. So long as the death benefit is guaranteed, it’s usually okay to take a little more risk if you don’t plan on accessing the cash value.
Other Facts to Know
Single premium life insurance is tax-deferred. Plus, beneficiaries can inherit the proceeds without paying taxes or dealing with probate. The funds are available immediately for their convenience. To purchase this insurance, you may have to pass underwriting and a health exam. And frequently, there is minimum investment involved, such as $5,000. These considerations have an impact on whether single premium life insurance is accessible for certain people.
Consider your options carefully before making a final decision. Talk to a dedicated insurance agent, accountant, and an attorney to help determine if single premium life insurance should be a part of your portfolio.
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Category: Life Insurance