What is a Single Premium Life Insurance Policy?
A single premium life (SPL) insurance policy is an insurance product that allows you to pay a single payment or premium in a lump sum to obtain an insurance policy with a death benefit guaranteed to remain paid up for the rest of your life. The size of the death benefit depends on the amount paid into the policy and the age and health of the insured.
What are the Features?
With the costs of health care continually rising, many retirees are concerned about setting money aside for heirs and then not being able to care for themselves properly.
Some single premium life policies will give you tax-free access to a portion of the death benefit to pay for long-term health care expenses. This feature can help give you the confidence to set money aside for your loved ones, knowing that you can access some of it for your own care if the need arises. If you do access some of the death benefit for your own care, the remaining death benefit will generally pass income-tax free to your beneficiaries. If you don’t use any of it, the money will go to your loved ones just as you had originally planned. This flexibility means that you can have peace of mind to leave a legacy for your dependents while still helping to protect yourself.
The money that you invest into a single premium life policy will generally grow tax-deferred inside the policy. You only pay tax on the earnings if you withdraw or borrow money from the policy. The death benefit passes tax-free to your heirs, which is what makes these policies such great tools for wealth transfer and inheritance planning.
SPL policies are also creditor protected, which means that in the event of some financial calamity such as bankruptcy or other creditor seizure, your life policy can’t be attached or taken to satisfy the claims of your creditors.
When is Single Premium Not Appropriate?
SPL policies are generally considered to be modified endowment contracts (MEC)s. Withdrawals from the policy may be subject to unfavorable tax treatment prior to age 59.5. So, if you are under age 60 and plan to withdraw money from the policy for expenses other than long term care, then an SPL policy probably isn’t a good choice for you. Also, if you are in very poor health, you may not qualify for coverage for a single premium policy.
Is Single Premium Life Right for Me?
If you are over 65 and interested in passing a tax-free death benefit to your heirs, then an SPL policy could be the solution for you. If you’ve wanted to set aside some money to leave behind for your beneficiaries, but have been concerned about not having enough to properly care for your own health care needs, a single premium life policy might be the answer.
Contact your Puritan Advisor today to find out if a Single Premium Life Insurance policy is right for you!