Single-Premium Life Insurance
Quick Facts
With single-premium life insurance, you pay one large payment upfront to fund the policy
Single-premium life insurance policies allow death benefits to be available immediately, but there are tax penalties if you borrow from the cash value
Single-premium life insurance policies can’t be added to in the future, so you can’t change the benefit later
Single-premium life insurance allows you to pay for your entire policy upfront. However, lump-sum life insurance isn’t for everyone since the cost is significantly higher than a traditional policy, and accessing the cash value has tax consequences.
How does single-premium life insurance work? Keep reading to determine if single-premium life insurance is right for you.
Understanding Single-Premium Life Insurance
While there are many types of life insurance, most policies require you to pay for your policy monthly or annually. However, single-premium life insurance requires that you pay for your policy upfront.
How does life insurance work with a single premium? Single-premium life insurance policies provide a guaranteed death benefit and the ability to borrow against the policy if necessary. However, these policies are more expensive than traditional ones but can offer peace of mind since they are fully funded.
Can life insurance be cashed out if you pay in advance? Yes, however, there are severe tax penalties if you withdraw money from your policy. The IRS considers single-premium life insurance a modified endowment contract because the initial payment exceeds tax limits. Additionally, you may be charged a surrender fee if you remove all the money from the policy.
Choose a different type of policy if you anticipate the need for cash-value life insurance and avoid hefty taxes.
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Pros and Cons of Single-Premium Life Insurance
Single-premium life insurance is beneficial in specific circumstances if you have the money to find the policy in advance.
Pros of a single-premium life insurance policy include:
No monthly or yearly payments
A fully funded policy from the beginning
Ability to borrow against the cash value if needed
Deferred taxes on investment growth
While a single-premium policy guarantees that your death benefit is fully funded, some drawbacks exist.
Cons of single-premium life insurance include:
A significant initial investment
Tax implications if you borrow against the value
Overpaying if you die unexpectedly
Inability to make additional contributions to increase benefits
Although this type of insurance doesn’t offer living benefits life insurance, there are ways to borrow against the cash value for long-term care or other needs. If you think you’ll need to access the cash value, learning how to borrow money from your life insurance is essential.
Average Cost of Single-Premium Life Insurance
Many factors affect the cost of life insurance, such as age, health, and habits like smoking. Therefore, rates vary widely based on the insured.
This table shows average single-premium life insurance rates by age.
Single-Premium Life Insurance Policy and Upfront Payment
Coverage AmountSingle Premium Cost
$100,000$22,000
$250,000$45,000
$500,000$81,500
$750,000$120,000
$1,000,000$152,000
Your upfront payment increases significantly based on coverage. Remember, you may wind up paying more than with a traditional policy, especially if you die earlier than expected.
Use a single-premium life insurance calculator to determine if this type of coverage is best.
Single-Premium Life Insurance Coverage Options
While coverage options vary by insurer, two types of single-premium insurance are the most popular.
The first option is single-premium whole life insurance which provides a fixed interest rate that ensures steady investment growth.
The other popular option is single-premium variable life insurance which allows you to invest in stocks and a fixed account to increase investment growth. However, variable life insurance can be risky since you may lose money on your investments.
While there are other options, not all types of insurance are available. For example, you may not be able to get guaranteed issue life insurance with a single premium since there is typically a waiting period before your policy goes into effect with no health exams.
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The Best Single-Premium Life Insurance Companies
The best company providing single-premium life insurance varies based on the coverage, rates, and access you need. For example, State Farm life insurance is ranked highly due to excellent customer service and various coverage options. However, coverage is only available in some places, and you can’t get quotes online.
This table breaks down some of the best single-premium life insurance companies.
Single-Premium Life Insurance Companies Coverage Comparison
Company NameProduct OfferingSupport FeaturesProsCons
State Farm- Wide selection of product types, including single-premium life insurance
– Guaranteed cash value that grows tax-deferred
– Offers quotes online for term life insurance policies- Online quotes for some insurance products
– Ability to make changes through an agent or by mail- Ranks high in customer satisfaction and financial ratings
– Offers a range of products to suit different budgets and needs
– Offers online quotes in minutes- Does not offer coverage in Massachusetts
– Provides only term life quotes online
– Changes to life insurance must be made through an agent or by mail
Northwestern Mutual- Range of life insurance products, including single-premium life insurance
– Option to receive funds in lump sum or installments, investment account, or combination
– Offers dividends for all policy types- Online quotes and applications not available
– Most applicants must undergo a medical exam
– Limited financial resources online- Ranks high in customer satisfaction and financial stability
– Low customer complaint ratio
– Offers a comprehensive approach that encompasses insurance and investments- Online quotes and applications not available
– Most applicants must undergo a medical exam
– Limited financial resources online
MassMutual- Guaranteed acceptance whole life to those ages 50 to 75
– Offers a range of products and services
– Low customer complaint ratio- No online rate calculator
– High minimum coverage amount for some policies
– Medical exam required for most policies- Most affordable single-premium life insurance policy provider
– High financial stability score
– Offers a range of products and services- No online rate calculator
– High minimum coverage amount for some policies
– Medical exam required for most policies
– Does not allow consumers to apply online
The best way to find the right company is to compare multiple single-premium life insurance quotes. Compare rates, ratings, and coverage to find the most affordable single-premium life insurance.
People That Benefit Most From Single-Premium Life Insurance
You may need single-premium life insurance if you need immediate coverage to provide for a child with special needs or want to use the policy for estate planning. See a financial planner to determine if a single-premium insurance policy is your best tool.
The Bottom Line: Single-Premium Life Insurance
A single-premium life insurance policy requires a substantial upfront payment, but the policy is immediately funded. While you can borrow against the policy, you may face heavy taxes and penalties.
Although single-premium life insurance isn’t for everyone, it can be an excellent way to provide for family members and estate planning.
Frequently Asked Questions
Is single-premium life insurance expensive?
Single-premium insurance is more expensive than other coverage options and requires a large payment when you sign up for the policy.
Who shouldn’t get single-premium life insurance?
You shouldn’t get single-premium life insurance if you can’t afford the hefty lump-sum payment or may need to access the cash value later since you’ll be hit with tax penalties.
Is single-premium life insurance and whole-life insurance the same?
No, single-premium life insurance refers to paying your policy upfront, and whole life relates to policies in place as long as you pay the premiums. Single premium and whole life are types of permanent life insurance. However, most whole-life policies are paid monthly or yearly.
Can you borrow from single-premium life insurance?
Whether or not you can borrow from your single-premium life insurance depends on the policy. While many insurers allow you to access the cash value, that’s not always the case.
Do I get my premium back when I cancel single-premium life insurance?
You will likely be subject to surrender fees if you cancel single-premium life insurance, especially within the first few years. However, rules vary by insurer.
What are the pros and cons of single-premium life insurance?
Advantages of single-premium life insurance include the immediate funding of the policy and the ability to borrow against the cash value. However, disadvantages include heavy taxes if you access the cash value, the inability to increase contributions, and the large upfront cost.
What is the difference between single-premium life insurance and annual premium life insurance?
You pay the entire premium in a lump sum with a single-life insurance policy. On the other hand, an annual premium life insurance policy means you make payments each year.
Is single-premium life insurance taxable?
While the death benefit isn’t taxable, you may face significant taxes and penalties for borrowing against the cash value. This type of policy is considered modified endowment contract life insurance which comes with increased tax rules and penalties.
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Rachael Brennan
Licensed Insurance Agent
Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
Benjamin Carr
Former State Farm Insurance Agent
Benjamin Carr worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and informed his clients about their life, health, property/casualty insurance needs.
Assessing risks and helping people find the best coverage to suit their needs is a passion of his. He appreciates that insurance was designed to protect people, particularly during times…
Former State Farm Insurance Agent
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