Single premium life insurance is a type of policy where you pay one large premium instead of monthly premium payments to receive life insurance benefits, like the death benefit payout.1 The death benefit is the amount of money given to beneficiaries once the policyholder passes that can help ensure financial stability for loved ones.
At Aflac, we don’t offer single premium life insurance, but in some cases, you may have the flexibility to adjust your premium payments on other policies. Single premium life insurance and traditional life insurance (offered at Aflac) provide similar benefits, but the payment schedule is different.
There are a few different kinds of single premium life insurance, like single premium whole life insurance and single premium variable life insurance. The main difference between these two life insurance plans is how the cash value functions.2
Cash value is a feature of some life insurance plans where a portion of the premium payment is put into a savings-like account that grows over time tax-deferred. If this feature appeals to you, cash value is offered in Aflac Whole Life Insurance plans.
The cash value grows in a single premium whole life insurance plan at a pre-determined fixed interest rate and functions the same way as Aflac Whole Life Insurance plans. Because there is less variability involved in this kind of life insurance plan, it is viewed as less of a risk.3 On the other hand, single premium variable life insurance invests the cash value into various portfolios. This is known as active investing and has the potential for greater reward or loss.4
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Now that you understand the single premium life insurance definition, we can explore the benefits and drawbacks of this type of life insurance plan.
Single premium life insurance can grant beneficiaries a substantial death benefit. While every life insurance plan functions differently and death benefit capabilities vary, single premium life insurance can be helpful if you are looking to give loved ones a large payout.5
Additionally, it may be helpful to pay for your life insurance plan upfront if you can do so financially. Lastly, you may be able to access the cash value in these life insurance plans in the form of a loan, with a few extra hurdles compared to a traditional life insurance plan with cash value.
With single premium life insurance plans, you are required to pay a sizable fee upfront to guarantee benefits will be available. The bare minimum investment for these plans is somewhere around $5,000, which isn’t financially possible for everyone and offers a minimal death benefit payout.6
There are also more tax limitations involved when borrowing the cash value from a single premium life insurance plan than a whole life insurance plan.7 Once premium payments reach a specific value, they qualify as a modified endowment contract with a different tax structure. This value is determined by undergoing the seven-pay test.
The seven-pay test of a single premium life insurance policy measures how much money is spent on premiums over seven years. If the amount spent on premiums in seven years exceeds the total cost of a policy, it fails the test and qualifies as a modified endowment contract.8 Due to this legality, all single premium life insurance plans are modified endowment contracts. These contracts face greater withdrawal penalties, making it more challenging to utilize the cash value.9
With our whole life insurance plans, you may be able to borrow against the cash value in the form of a loan with little to no penalties. We recommend chatting with an agent to understand your life insurance options better if cash value appeals to you.
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1-2, 5 Investopedia - Single-Premium Life Insurance Definition. Updated Oct 13, 2021. https://www.investopedia.com/terms/s/single-premium-life-insurance.asp. Accessed May 25, 2022.
3-4, 6-9 Value Penguin - What Is Single Premium Life Insurance? The Pros and Cons. Updated Apr 7, 2021. https://www.valuepenguin.com/single-premium-life-insurance. Accessed May 25, 2022.
In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, and Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400 and Riders: ICC1368050, ICC1368051, ICC1368052, ICC1368053, ICC1368054, ICC1368055. This is a brief product overview only. Coverage may not be available in all states, including New York. Benefits/premium rates may vary based on plan selected. Optional riders are available at an additional cost. The policy has limitations and exclusions that may affect benefits payable. Refer to the policy for complete details, limitations, and exclusions. For costs and complete details of the coverage, please contact your local Aflac agent.
Aflac does not offer universal life insurance, but we can point you toward our whole life insurance policy if you have different coverage goals in mind. Chatting with an agent about your options may make this decision easier.
Coverage is underwritten by American Family Life Assurance Company of Columbus.
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