| By :
Marilyn Katz
There are whole life insurance policies that you can purchase with one lump sum. These cover your life the same as any regular policy. But instead of making premium payments over a period of years, you just make a big payment when you buy the policy. This sound simple, but it does make this product a little different than other types of coverage you may have purchased before. This is a form of whole life, but it is guarateed with one payment. You understand that the death benefit of the policy will usually be a lot bigger than your initial payment. So this may be a great option if you want to turn a smaller lump sum of money into a much larger inheritance. Let us say that a retired school teacher is comfortable with her pension and savings. In this example, she just inherited $22,000 from an uncle, and is certain that she will not need to use this money to enjoy her life. This woman could invest her money in a $100,000 policy. She will be assured that her son will be able to inherit a nice estate. Now understand that the price you would pay for a particular policy will depend upon many different things like your age, health, the insurance company, etc. Who should consider single premium life (SPL)? It is something to consider if you have a lump sum of cash that you would like to leave to your heirs. You can leave the money to your kids or a foundation. You must be pretty certain that you will not need these funds soon. In the first few years, policies can impose fees and surrender charges. So it is probably not the right life insurance if you are not sure if you will need the money to live on. Another advantage to the owner is a SPL policy's ability to grow a cash value quickly. If you can leave the money alone for the few years you will need to get past surrender charges, you can have a nice place to borrow money from. You can also cash the policy in. The cash value should grow quickly since the insurance is already funded by the initial payment! Many policies also have accelerated death benefit provisions. If the insured person is terminally ill, some of the death benefit can be used to provide care while that person is alive. Some also have nursing home provisions, so this can be a good way of planning for that possible need without another long term care insurance policy. An SPLI policy is not the right solution for all people. If you do not have a lump sum of money, you may be better off with a regular life insurance policy and monthly payments. You should also understand that SPLI may be treated differently by the IRS. And finally, if you think you may need to withdraw your money in a short time, it will probably not benefit you. Some policies have charges for early distribution that can lower the value a lot.
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