As life becomes more precarious with each passing day, life insurance has become more important than ever. This way, the insured’s family gets the financial security they need in the unfortunate event of the former’s demise.
Not to mention, the policy also helps clear off any debts left behind. Studies have shown that only a little over half (52%) of American adults have some form of life insurance. Many do not feel the need or cannot get a term policy.
Some of the common reasons cited for not having life coverage include:
- Regular premium payments are too expensive.
- There’s no need to get one.
- Confusion regarding which policy would be the best
- Confusion regarding the amount of coverage required
- A lack of time to figure these things out
- The entire process seems too daunting and confusing.
Though life insurance is not the most exciting thing to purchase, it’s crucial (especially for those with financial dependents). One policy that eliminates most of these concerns is a single-premium whole-life policy.
In this article, we will discuss three top reasons to invest in this type of life insurance.
1. Single Premium Payment
Just like the name suggests, the policyholder must pay just a one-time sum upfront to get themselves covered. Since it is a whole-life policy, the insured is covered for as long as they’re alive (be it 10 or 50 years from the date of policy issuance).
A guaranteed death benefit is offered in exchange for the lump-sum money. After the policyholder’s death, their beneficiaries can avail of the death benefit as a total or in installments. Also, the single-premium whole-life policy is offered with a risk-free fixed rate of interest.
To get the most out of this life insurance, it’s important to learn more about the insurer’s age limits, amount availability, and other criteria. One essential thing to keep in mind is that a single-premium whole-life policy may not be suitable for everyone.
This is because it requires access to substantial funds. Those who have idle funds lying around and wish to put them to good use can invest in this policy. Being fully funded from the get-go, a single-premium whole-life policy’s cash value increases quickly.
According to 1891 Financial Life, the payable dividends can even be used to purchase additional coverage or allowed to grow in the policy itself. However, the death benefits depend on the amount invested and the policyholder’s health and age during accrual.
2. Tax Benefits
Besides convenience, a single-premium whole life insurance policy offers tax benefits to its policyholders (at least, in most cases). In other words, the death benefits given out to beneficiaries are eligible for tax exemptions or deductions.
Also, the growth in the policy’s cash value is tax-deferred. This means the policyholder does not owe any income taxes on the dividends unless any withdrawals are made. The funds invested in the policy have room for compound growth without any yearly tax deductions.
This benefit of single-premium whole-life policies proves to be an effective tool for estate planning. For instance – the immediate death benefits allow the beneficiaries to pay off any estate taxes owed at the time of the policyholder’s death.
In some cases, the policy may be integrated with trusts to further enhance the estate’s tax benefits.
3. Availing of Long-Term Care
This benefit of a single-premium whole-life policy requires the purchase of a provision called a rider. It helps the policyholder to tap into a portion of the policy’s death benefits in the event of long-term care (LTC) for illnesses or disabilities.
Indeed, the rider will naturally add to the cost of the policy. Nevertheless, it offers the security and tax-free benefits many policyholders may need for long-term care expenses. This becomes crucial in light of the rising life expectancy, albeit with increasing cases of chronic illnesses and health risks.
In case of a dire situation post-retirement, policyowners shift their focus from financial security for their dependents to old-age management. After all, long-term care is expensive and can burden the family if not planned for efficiently. Through a single-premium whole-life policy’s rider provisions, it is possible to have at least some LTC coverage.
4. No Unnecessary Hassle or Stress
The fourth reason to consider investing in a single-premium whole life insurance policy is the absence of ongoing payments. Beneficiaries with substantial funds can make a one-time payment and receive a guaranteed sizable death benefit.
In the case of traditional insurance, one must constantly keep a tab on regular payments (be it quarterly, half-yearly, or yearly). Not only that but concerns regarding how such payments may affect the budget also abound.
Such benefits are most evident in the case of older adults on fixed incomes already struggling to meet their monthly obligations. They can purchase the policy and forget about it, resting stress-free that they’re insured for life.
5. Option to Borrow against the Policy
Life is quite uncertain and emergencies never arise with prior notice. Suppose the policyholder faces a sudden medical emergency down the line followed by a financial crunch.
Even then, the single-premium whole-life policy can come to the rescue. By its very nature, the policy’s cash value increases over time. In case of any unforeseen expenses, it’s possible to borrow funds against the policy.
The good news is that the borrowed funds can be repaid later. However, even if the policyowner is unable to do so, the amount will just be deducted from the cash value. In the final analysis, the policy acts as a safety net, enabling the owner to proactively respond to life’s uncertainties.
Single-Premium Whole Life or Regular Term Insurance: What to Choose?
Despite being aware of the features and benefits of a single-premium whole-life insurance policy, many policyholders sit on the fence. They find themselves confused between a single-premium whole life and a regular term insurance policy.
The choice will depend upon a few factors, the most important of which is the funds available to the policyholder. If there are idle funds and convenience is the priority, a single-premium whole-life policy spares the hassle of making quarterly, half-yearly, or annual payments.
The point is to not have one’s budget disturbed. After all, insurance is a long-term investment instrument. Those with a seasonal income and a highly busy schedule will find a single-premium policy more suitable. Insurers provide multiple life policy options, so there’s something out there for everyone.
