Breaking down single-premium life insurance

Jul 20, 2011

Single-premium life insurance could make sense for some people

Though consumers who purchase term life insurance may be used to paying a regular premium, some consumers take the option of purchasing single-premium whole life insurance.

This type of coverage is paid in one lump sum, and it can present advantages to those who can afford it and know how it works, reports The most beneficial aspect of a single-premium policy may be its ability to pass death benefits to a person's heirs tax-free. That can provide an alternative to a variable annuity, experts told the source.

"If you put $50,000 into both a variable annuity and single-premium life policy and they're both worth $200,000 in death benefit, there is zero tax consequences for the SPL if it's been set up correctly, while you're going to have $150,000 in income on the annuity contract that the heirs will have to pay tax on at ordinary income rates," insurance consultant Judith Hasenauer told the source. "The best you can do with the annuity is amortize that tax hit over five years."

Such contracts are normally advised to consumers with an estate to consider, while experts normally recommend straightforward term life insurance policies for most consumers.


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