Life insurance is not just about death benefits anymore. When used properly, it can be a sophisticated financial tool.
It is a key component when it comes to creating a sound financial plan. There are multiple ways a single-premium life insurance policy can now help individuals in a wide range of financial situations.
Life insurance should be considered a part of everyone’s financial plan. Purchased with a lump sum, an individual receives a policy with a death benefit guaranteed to be in place when the insured dies. Typically, the younger the person is when they apply for the insurance, the greater the benefit received. Also, it is sometimes easier to qualify for a single-premium policy from a medical and age point of view, because the full premium is paid at issue.
Single-premium life may be the best choice when a person receives a lump sum of cash from an inheritance, retirement account, gift, etc., and he needs life insurance coverage. A one-time, lump sum premium payment will usually produce several times that amount in coverage immediately. The amount of protection will usually continue to increase over time until it is much greater than the amount paid into the policy.
Wealth creation and wealth transfer
Single-premium life insurance is an excellent tool for wealth creation and wealth transfer. It is an efficient way of maximizing the assets which will eventually be distributed to loved ones and/or charities because life insurance policies create instant wealth.
The holder of a single-premium life insurance policy can benefit during his lifetime, because the cash value of a fully funded policy can grow quickly and possibly provide income if needed. The insured can also borrow against the policy if desired.
It is important to keep in mind that withdrawing cash values from a single-premium policy can result in extra taxes, because the IRS may consider the policy as a modified endowment contract. This would cause the withdrawal of gains from the policy to be taxable as ordinary income just like the withdrawal of gains from an annuity. If the owner is under the age of 59 1/2 , the IRS can add an additional 10 percent penalty as well. For these reasons a single-premium life insurance policy is best for people who plan to keep their policy without accessing any of the cash value prior to death.
An answer for long-term medical expenses
Some policies allow the insured the option of an accelerated death benefit that can be used as a tax-free way of addressing long-term care expenses. Many single-premium life insurance policies include a feature that allows the withdrawal of part of the death benefit when the insured is diagnosed as terminally ill and wants to spend the monies before death.
Planning for a brighter retirement