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Single Premium Life Insurance Policies

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Single Premium Life Insurance

We offer single premium life insurance quotes and illustrations from several highly-rated providers. We can help advise you as to which type of life policy can be most beneficial to you and your beneficiaries.

Hyers and Associates, Inc. is an independent life insurance agency representing numerous carriers. There may be several reasons you are considering a single premium paid-up policy. We can help you find the coverage that best suits your needs.

Comparing Single Pay And Installment Life Plans

Single pay life policies are designed to fit a wide array of investment and planning needs. In some cases they are used in conjunction with a 1035 tax-free exchange to preserve principal and gains in an old policy. Other times they are used for wealth transfer strategies, funeral trusts, charitable giving and future asset growth.

In most instances, these are paid-up whole or universal life policies that do not require future premium payments. In other cases, they are funded through installment payments, but usually over a short amount of time. Some plans are funded in as short as 2-3 years while others are spread out over a longer period of time depending on what illustrates the largest payouts.

Deferring Gains Using A 1035 Tax-Free Exchange

Single Premium Life Insurance RolloverOftentimes, a 1035 tax-free exchange strategy is used simply to protect the cash value and or investment gains in an older policy. Or maybe a safer, paid-up investment is desired.

Owners can transfer their cash value on a tax-free basis to a new paid-up policy without creating a taxable event. New policies can no longer require ongoing premiums and can also guarantee a known death benefit.

In some cases, the death benefit created from a 1035 exchange might be less at onset when compared to the policy from which it originated. However, this may be more advantageous to an owner who does not want to create a taxable event and no longer wishes to fund an existing universal or whole life policy.

A 1035 exchange is a also a means to protect the existing cash value of a life policy from the Medicaid spend-down process. Those who are in the process of qualifying for Veterans Aid and Attendance and/or Medicaid benefits will fund an Irrevocable Funeral Trust with cash and/or the cash value of an existing policy in order to protect their estate.

Life Insurance For Charitable Giving And Wealth Transfer

Single premium policies are a preferred method for transferring wealth to beneficiaries and charitable organizations on a tax-free basis. Life policies are popular for the simple reason that payouts are tax-free upon inheritance. When part of an irrevocable life insurance trust, they can also reduce federal estate and state inheritance taxes.

As oppose to leaving a taxable annuity or low interest certificate of deposit to a loved one, a single premium policy will instantly create a tax-free death benefit to the named beneficiary. A $50,000 CD could be used to fund a paid-up policy with a death benefit of $100K or more depending on your age and health. And the policy owner would still have access to the principal if needed.

Charities prefer life insurance policies as they are a known quantity and easily accessible upon passing. The leveraged principal almost always creates and transfers more wealth (through an increased death benefit) so the charity has more funds to do their good work. The insured may be able to deduct their premium outlays as well.

Single Premium Life As An Alternative Investment

As oppose to a taxable bank CD or annuity, paid-up life policies are gaining in popularity as a safe and conservative investment option. They grow based on the performance of certain chosen investments while also providing tax-free benefits to the beneficiaries.

Guaranteed universal indexed life insurance policies are popular as they safely credit interest based on gains in market indexes life the S&P 500. Indexing eliminates exposure to the downside market risk associated with variable products. Additionally, indexed life policies typically offer more favorable caps, spreads and participation rates than their fixed-indexed annuity counterparts. This translates to increased investment growth.

What Is A Modified Endowment Contract?

A Modified Endowment Contract (also referred to as a MEC) is a rapidly funded life insurance policy that offers a less favorable tax treatment than a traditionally funded policy. Almost all single premium policies will be treated as MECs.

In 1988, the tax laws were changed to discourage the use of life insurance as a short term savings vehicle. Under these new laws, withdrawals, partial surrenders, loans, or assignments taken from the gains of a life insurance policy that qualifies as a MEC will be taxed as income and can be subject to IRS penalties.

Modified Endowment Contracts still offer a tax-free death benefit to the insured (this being their primary advantage over an annuity or other investment) but policy owners can no longer access their investment gains on a tax-free basis.

It is also important to note that if a non-MEC (pre June 1988) policy undergoes what the I.R.S. considers a material change, then it can also qualify as a MEC. In other words, transferring an old policy to a new policy using a 1035 tax-free exchange may cause gains in the new policy to lose their favorable tax status. Once a policy is deemed to be a Modified Endowment contract, then it will always be treated as such.

Thus, it is important to discuss the tax status of any policy you are considering with your tax advisor. Our agency can also tell you whether your single premium policy or 1035 exchange will be subject to MEC taxation rules.

Request Quotes, Illustrations And Information

We are an independent insurance agency specializing in single premium life policies for wealth transfer and estate protection. We’ll help you compare and contrast a single pay life policies from several highly-rated and reputable providers. Contact us today to learn more.