Single premium life insurance is a type of whole life insurance that is unique in that it requires only one large single up-front payment. Normally, a whole life insurance policy is paid through regular installments. Because a whole life insurance policy has a built in savings component that accumulates alongside your insurance coverage, it is used by many as a savings medium.
In a traditional whole life policy, this cash value builds from your regular installments which generates returns, and in some cases, dividends. Simply put, the more cash value you have built up, the more interest you generate, plus you are entitled to more dividends. With a single premium life insurance policy, the cash value that would otherwise take years to accumulate, begins appreciating immediately.
The advantages of a single premium life insurance policy are numerous. Since this is a variation of a whole life policy, it guarantees that the insured does leave behind a death benefit. Since the benefits paid are not taxable, transferring wealth this way for a future generation can be a great option. In many cases, the amount deposited results in twice (or more) in death benefits. As an example, a deposit of $100,000 into a single premium life insurance policy at age 65, could result in a $200,000 pay out.
Having a policy that accumulates cash value can have other benefits as well. In the event the insured individual decides to surrender the policy, they are entitled to it’s cash value, with some policies even guaranteeing that the cash value to be no less than that the one time deposit. Also, this means the policy can be borrowed against for those who would rather not forfeit their life insurance coverage but still need to access the cash value.
Purchasing life insurance is among one of the most important decisions you make. LifeCover.ca works with thousands of Canadians, and helps them get their questions answered. With our network of independent brokers across Canada, we make buying life insurance easy.