| By :
Marilyn Katz
Have you heard about SPL insurance (Single Premium Life Insurance)? As the name implies, this is simply a life policy that is purchased with one large payment right at the start. Instead of making periodic payments over the course of years or decades, the whole policy gets funded with one lump sum cash premium. This may sound a little different than what you are used too. This type of product has some advantages and disadvantages. Not everybody will benefit from SPLI, but it can be a good choice for some. Some advantages of single premium life insurance follow. There is a multiplier effect. If you have a sum of cash that you do not need for daily living, you can turn it into a much larger cash benefit that will be left to your estate. For example, let us say a teacher retires with some savings and a retirement plan so she can live comfortably. She inherits $20,000 for her parents, and wants to turn around and leave this to her own children. It is likely that she could purchase a death benefit that is some multiple of the original cash she has to pay her first premium with. This is one way that people use to grow their estates. There can be a fast cash value build up. Since the actual insurance premiums are all paid off, the policy can actually grow a cash value much more quickly than traditional cash value life insurance. Some policies grow by a set interest rate or a market index. This is one way to grow an asset that could be useful while you are still alive. The cash value can be borrowed against or even cashed in. Life Settlements can help you. These types of deals are getting very common. Investors will purchase whole life policies for some percentage of the death benefit, which is usually much larger than the actual premiums that have been paid. Take the example of the teacher who funded a $100,000 life insurance policy with a $20,000 single premium. Let us say she decides that she needs more money in 10 years. She may be able to find a life settlement company who will pay her half of the death benefit, or $50,000, for her policy. Please keep in mind that any numbers I used in the examples above are just to illustrate the way single premium life insurance. They are not meant to suggest any actual premiums or death benefits in the real world. Those will depend upon the insured person's age, health, zip code, etc. You should take the time to compare quotes to see what amount of coverage you can get for your money. Understand again that SPLI is not the right choice for all people. There are some disadvantages you should consider. You need to have a lump sum of cash. You need to have that lump sum of cash, that you will not need to live on right away, in order to make that first payment. There may be surrender charges if you have to cash your policy out early, so this is not a good option if you think you may need the money soon. There may be some tax disadvantages too since the IRS considers SPL policies to be modified endowment contracts (MEC). It is important to understand how this will affect your tax bills vs. traditional life insurance policies which are very tax advantaged products. If you are considering buying a new life insurance policy, especially if you are doing any retirement planning, an SPL policy may work out well for you. But again, they do not benefit everybody. Make sure you understand your options so you can choose the best life insurance for you.
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