Single-premium life insurance lets you pay for coverage up front

Jill Overmyer

Life insurance is designed to protect your survivors and estate after you die. In most cases, you pay regular premiums to keep the policy in effect. But what if you'd prefer to lay down a large amount of money upfront instead of having a monthly premium? Single-premium whole life insurance allows you to do just that.

The basics

Single-premium life insurance is a type of whole life insurance. Whole life insurance provides coverage for the duration of your entire life, as opposed to term insurance, which provides coverage for a specified term (20 years, for example). With single-premium whole life insurance, the policyholder pays all premiums in advance in the form of one lump sum, according to the New York State Insurance Department. No more payment is required.

As with other types of whole life insurance, single-premium policies are tax-sheltered and accrue cash value. Some policies grow at a fixed rate of interest set by the insurer, while others allow policyholders to invest the lump sum payment in a variety of stocks, bonds and mutual funds. When the policyholder dies, the beneficiaries get a predetermined death benefit in addition to any accrued cash value.

Pros and cons

When considering any type of life insurance, it's important to weigh the pros and cons. Some benefits of this type of insurance include:

  • Savings and loans. Like traditional whole life policies, single-premium policies allow you to build up cash. If you deposit a large sum of money as the initial payment, that cash could grow quickly. Moreover, you can tap into the policy in the form of low-interest loans -- you'll just have to be sure to pay them back to avoid lowering the death benefit (the amount of money your beneficiaries get).
  • Accelerated death benefits. Like other types of life insurance, single-premium policies include accelerated death benefits. In other words, if you're diagnosed with a terminal illness, you can receive the policy's death benefit while you're still alive to pay for medical and hospice care. Baltimore Life, for example, allows policyholders to withdrawal up to 100 percent of the death benefit if they have less than 12 months to live.
  • Tax benefits. Tax benefits with single-premium whole life policies are numerous. Investment gains are tax-deferred, and the death benefit is tax-free. You pay taxes only if you borrow money from the policy.

A few of the drawbacks to consider before buying a single-premium whole life policy include:

  • Cost. The upfront costs associated with single-premium policies are generally quite large. A single-premium product offered by the William Penn Association, for example, requires a minimum issue amount of $3,000. Many policyholders may find monthly premiums much more manageable.

Medical limitations. As they do with all life insurance policies, insurance companies will have specific medical underwriting requirements for single-premium policies that you must meet in order to qualify. If you are older or in poor health, this type of policy could be too costly.