Single premium whole life functions similarly to a retirement savings account. That initial investment you make grows according to a fixed interest rate set by your insurer. This is a guaranteed minimum. The growth is slow, but it accumulates into something greater over time.
The growth isn’t taxed, but the withdrawals are. When you withdraw money, it subtracts from your death benefit. This is subject to administrative fees in addition to taxes. This works like a loan. If you do not put funds back into the account, your loved ones will receive what is left of your death benefit after you have borrowed against it.
The premium depends on a few factors:
If you’re older and in poor health, the lower the death benefit you’ll qualify for, and the higher your death benefit will be. A 60-year-old, for instance, will be able to secure a $50,000 policy with a $25,000 one-time premium payment. A 50-year-old, on the other hand, could get a $400,000 policy with a $100,000 single premium payment.
The policy size is your choice, but generally, companies require an initial premium of at least $5,000.
There are other types of single premium policies, which include single premium universal life and single premium variable life insurance.
Single premium whole life stands out as the most conservative of the three options. Universal life has an interest growth like single premium whole life insurance, except it has a stock market component that leaves the policyholder vulnerable to loss if the market suffers. Single premium variable life has the highest risk, utilizing the investment component with no guaranteed interest rate.
At Alvarado Master Agency, we can arrange for you to get the best life insurance policy that fits your needs. If you’re looking for a policy that you’ll only need to make a single payment on, while also having the ability to borrow against it, we can help you get it.
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