Single premium life insurance is an insurance policy that requires only one lump payment of the premium in order to be in full force. Also known simply as SPL, a policy of this type does not offer much in the way of additional benefits over coverage that requires a series of premiums over the life of the policy. There are a few situations in which this approach to securing life insurance would provide benefits that may or may not be obtained from more conventional arrangements.
One of the scenarios in which single premium life insurance may be beneficial is if the insured party wishes to provide a lump sum to a beneficiary in the form of a death benefit. Individuals may use this approach to ensure a specific amount will be paid to a spouse, child, or other designated beneficiary, regardless of how long the policy has been in effect. The amount of that lump sum will depend on the age at which the individual takes out the policy, and the anticipated life expectancy of the insured party. Someone who is younger when taking out the SPL will pay a smaller lump sum in order for a greater death benefit than an individual who takes out the coverage at age 60 and wishes to pay the same amount as a lump sum.
Some single premium life insurance policies also offer benefits that relate to long-term care. This is usually in the form of providing tax-free access to the death benefit as a means of paying for that care. Using this provision does reduce the amount of death benefits that are received by beneficiaries, but it has the advantage of protecting the other assets of the policyholder from being used to fund the long-term care. From this perspective, the single premium life insurance approach can be an ideal approach is the holder does have a number of assets that he or she wishes to pass on to survivors.
There are usually some limitations regarding withdrawing part of the death benefit to provide care. Many single premium life insurance policies will require that the insured party be diagnosed as having a terminal illness and have medical proof that the attending physician does not anticipate the party from living more than twelve months from the date of the diagnosis. Being able to draw on the funds during the last months of life can help make preparation for dying easier to manage, as well as provide the necessary care to keep the patient as comfortable as possible.
It is possible to purchase single premium life insurance policies that carry variable as well as fixed interest rates. With the variable approach, policyholders are usually provided some options in the selection of investments that underpin the coverage, and could possible grow the investment beyond the guaranteed minimum benefit. Determining which approach is best has a lot to do with how knowledgeable the policyholder is about investment matters, the other assets contained in his or her investment portfolio, and how the holder anticipates to make use of the cash value of the policy.
