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Is your CD working for you?

There are some advantages to buying a single premium life insurance policy.

You can just make one large payment, and then know you will be covered for the rest of your life.

And if you happen to have a lump sum of cash, you can usually purchase many times that amount of face value.

So one type of person who should consider this product would have some cash they do not need to spend, and who would like to turn that sum into a larger sum to pass on to heirs.

Single Premium Life Disadvantages

Policies differ, and you must compare them to find the one that is best for you. But here are some typical things to consider before purchasing one.

  1. Fees or Surrender Charges – Just after your purchase your policy, your cash value will be less than your investment. These are good for people who are sure they can leave the money alone for awhile.

  2. MEC Status – The IRS considers SPLI as Modified Endowment Contracts, and you may not get all of the tax benefits you do from a normal life policy.

  3. You need a fairly large amount of money – It may be more affordable for many people to purchase normal life insurance and just make monthly, quarterly, or yearly payments.

  4. Underwriting – Even though many insurance companies accept older people who are not in perfect health, they will probably require some sort of health application.

Advantages of SPLI

Here are some of the main reasons why many people are turning to single premium life.

  1. Cash Value – It should grow fairly quickly since you have funded the policy with a lump sum. This cash value can be borrowed against, though that may reduce the death benefit. You can also surrender your policy for the cash if you need it. Again, this really only works out well if you have held the policy for a few years. Check the terms of any policies you are considering.

  2. Accelerated Death Benefit – Look at the terms of your specific contract, but you should have a provision for cashing in a large percentage of the death benefit if the insured person is terminally ill.

  3. Large Death Benefit – You have the opportunity to multiple the cash you have in order to pass it on to your heirs as an estate.. This could be your spouse, children, grandchildren, or a favorite charity.

  4. Simplified Underwriting – This is still life insurance, and their could be underwriting. But because the policy is being funded by a large, upfront payment, many insurers will accept applicants up to age 80.

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