Types of Single Premium Life Insurance – Did You Know there are Two Types of Single Premium Life Insurance?

Types of Single Premium Life Insurance Did You Know there are Two Types of Single Premium Life Insurance?

There are two types of single premium life insurance. The first type is single premium whole life insurance and the second is single premium variable life insurance. To understand the differences, you first need to understand what a single premium policy involves. This type of policy requires a single upfront premium payment. The insurance company takes that amount and, in return, the death benefit amount continues to grow until the death of the named insured. The way that amount grows depends on which type of policy you invest in.

The first form of single premium life is single premium whole life insurance. This option comes with a guaranteed return rate each year the policy remains active. The amount may be low each year, but it compounds and can become substantial over a number of years. The biggest benefit of this type of policy is that it provides a minimum amount of return on the amount invested. The risk of the investment falls with the insurance company instead of the named insured's beneficiaries.

The second form of single premium life is single premium variable life insurance. This type of policy differs from the other in the fact that the amount of the death benefit can vary. The policyholder has the option of having the lump sum invested in securities instead of receiving a fixed rate of return. This means that the amount of the death benefit will fluctuate depending on the way the securities' value varies. Overall, this option usually pays at a higher rate of return than the fixed rate. However, as seen in recent years, securities can fall in value quickly under certain economic circumstances.

If you are interested in either these forms of single premium insurance, you need to consider the options carefully. Both require a large amount of money up front. The exact amount will vary according to the desired final death benefit and the age and health of the named insured. These policies allow for tax-deferred growth of the initial investment. The only time tax penalties become involved is if the policyholder takes out a loan or makes a withdrawal outside the policy guidelines. Many find it to be a great way to insure their heirs receive a lump sum upon their demise. It is also a good tax shelter for some. Be sure to talk to both insurance and tax professionals before investing in any insurance policy.

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