Should You Choose Single Premium Life Insurance?

A single life insurance premium policy is a popular form of coverage that became popular after the Tax Reform Act of 1986. With this type of policy, you make one large payment to a life insurance company and it serves as your premium for the life of the policy. You do not make installments and the policy immediately starts to create cash value. While many people use this type of policy, is it a good idea for you? Let's look at the factors involved in a single life insurance premium policy.

Single Payment

For those that hate paying bills every month, this might be the way to go. You simply make one payment at the beginning of the policy and you are paid up for life. This means no matter what happens, you are covered for the remainder of your life. You cannot lose the policy for missing any premium payments because you do not have any. It is truly a way to set something up and forget about it. The cash value will grow without any help from you and you could eventually borrow against it or cash it out if you chose.

Tax Shelter

After the Tax Reform Act of 1986, this type of insurance policy actually became a popular tax shelter. How would it work as a tax shelter? Imagine that you suddenly came into a large sum of money. You did not want to pay taxes on it, so you decide to buy this type of life insurance policy. As soon as you put the money in, it starts appreciating. The great thing about life insurance is that the money can accumulate tax free. Therefore, your money is growing interest without you having to pay taxes on it. This is a great way to protect your wealth without worrying about the government taking most of it.

When you need the money, you can get tax-free access to it through a life insurance policy loan. You take out a loan against the policy and then pay it back over a specified period of time. If you do not need the funds, you can pass them onto your beneficiaries without paying taxes either through the death benefit of the policy.

Is It Right for You?

There is no definite answer for all people whether or not a single premium life insurance policy is right for them. There are several factors that you need to look at. If you are taking out the policy completely for the insurance benefit, then it might not be your best option. That is a lot of money to tie up in a life insurance policy. You could make small payments every month and get the benefit of using your money along the way.

If you are you using the policy for the tax shelter benefits, then it might be a good idea. If you suddenly came into a lot of money and are at risk of paying taxes on it, then this is a way to get out of that. Look at all factors involved before you make a decision on a single premium life insurance policy.



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