The main benefit of life insurance is to leverage funds to create an estate that can provide for survivors or to leave something to charity. Single-premium life (SPL) is a type of life insurance in which a lump sum of money is paid into the policy in return for a death benefit that is guaranteed to remain paid-up until you die. Here we look at some of the different versions of SPL available, which offer a wide range of investment options and withdrawal provisions.


Living Benefits
While the death benefits of insurance policies provide you with an efficient means to provide for your dependents, you also need to consider unexpected expenses that can crop up in old age.
You probably understand the importance of long-term care insurance, as long-term care can often turn out to be an expensive predicament. But suppose you have put off buying this important coverage because you can't bring yourself to pay the annual premiums? SPLs can offer a solution. (To learn more, see Long-Term Care Insurance: Who Needs It? and Taking The Surprise Out Of Long-Term Care.)


A number of SPL plans also include a feature that will let you withdraw part of the death benefit if you are diagnosed with a terminal illness and have a life expectancy of 12 months or less. This flexibility can make the decision to sink away a large single-premium payment into a SPL policy less daunting for some people, and it is important to consider if you have limited financial assets outside of your SPL.

Investment Options
There are two popular single-premium policies that offer different investment options.

2. Single-premium variable life allows policy owners to select from a menu of professionally managed stock, bond and money market subaccounts, as well as a fixed account.


On the other hand, if you prefer the possibility of underperformance over the certainty of a fixed interest rate, a variable life insurance policy with subaccounts invested in equities and bonds may make more sense for you.

Withdrawal Options
SPL policies give you control over your investment, allowing access to the cash value for emergencies, retirement or other opportunities. One way to tap into the cash in the policy is with a loan.


Companies will also let you withdraw funds and deduct the withdrawal from the policy's cash surrender value. They usually have a minimum amount that you can remove. The amount you can take out each year without paying a surrender charge might be 10% of the premium paid in or 100% of the policy's gains, whichever is greater.

However, an extra cost can arise from withdrawals or loans from your SPL, since SPL policies are usually considered modified endowment contracts. This means there is a 10% IRS penalty on all gains withdrawn or borrowed before age 59.5. You will also have to pay income tax on those profits. Plus if you cash in the policy, the insurance company might hit you with a surrender charge.

Tax Treatment
Your investments will grow tax-deferred inside the policy. As noted above, you will only pay tax on the earnings if you withdraw or borrow from the policy. Your named beneficiaries, however, will receive the benefits income-tax free and without the time delay and expense of probate. This is an important benefit, as you do not want the effort and expense you devoted to providing death benefits for your dependents to be muted by undue time delays and probate costs.

The minimum amount you can invest in a SPL policy is generally $5,000, which can make it cost-prohibitive for many investors. Additions are not additions allowed. You should only consider using funds that you had intended to pass on to the next generation or to help fund a long-term goal, such as retirement. Also, you will have to meet the insurance company's medical underwriting standards to qualify for SPL.



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