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Single premium life insurance is a type of policy where you pay one large premium instead of monthly premium payments to receive life insurance benefits, like the death benefit payout.1 The death benefit is the amount of money given to beneficiaries once the policyholder passes that can help ensure financial stability for loved ones.
At Aflac, we don’t offer single premium life insurance, but in some cases, you may have the flexibility to adjust your premium payments on other policies. Single premium life insurance and traditional life insurance (offered at Aflac) provide similar benefits, but the payment schedule is different.
There are a few different kinds of single premium life insurance, like single premium whole life insurance and single premium variable life insurance. The main difference between these two life insurance plans is how the cash value functions.1
Cash value is a feature of some life insurance plans where a portion of the premium payment is put into a savings-like account that grows over time tax-deferred. If this feature appeals to you, cash value is offered in Aflac Whole Life Insurance plans.
The cash value grows in a single premium whole life insurance plan at a pre-determined fixed interest rate and functions the same way as Aflac Whole Life Insurance plans. Because there is less variability involved in this kind of life insurance plan, it is viewed as less of a risk.2 On the other hand, single premium variable life insurance invests the cash value into various portfolios. This is known as active investing and has the potential for greater reward or loss.2
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Now that you understand the single premium life insurance definition, we can explore the benefits and drawbacks of this type of life insurance plan.
Single premium life insurance can grant beneficiaries a substantial death benefit. While every life insurance plan functions differently and death benefit capabilities vary, single premium life insurance can be helpful if you are looking to give loved ones a large payout.1
Additionally, it may be helpful to pay for your life insurance plan upfront if you can do so financially. Lastly, you may be able to access the cash value in these life insurance plans in the form of a loan, with a few extra hurdles compared to a traditional life insurance plan with cash value.
With single premium life insurance plans, you are required to pay a sizable fee upfront to guarantee benefits will be available. The bare minimum investment for these plans is somewhere around $5,000, which isn’t financially possible for everyone and offers a minimal death benefit payout.2
There are also more tax limitations involved when borrowing the cash value from a single premium life insurance plan than a whole life insurance plan.2 Once premium payments reach a specific value, they qualify as a modified endowment contract with a different tax structure. This value is determined by undergoing the seven-pay test.
The seven-pay test of a single premium life insurance policy measures how much money is spent on premiums over seven years. If the amount spent on premiums in seven years exceeds the total cost of a policy, it fails the test and qualifies as a modified endowment contract.2 Due to this legality, all single premium life insurance plans are modified endowment contracts. These contracts face greater withdrawal penalties, making it more challenging to utilize the cash value.2
With our whole life insurance plans, you may be able to borrow against the cash value in the form of a loan with little to no penalties. We recommend chatting with an agent to understand your life insurance options better if cash value appeals to you.
1 Investopedia - Single-Premium Life Insurance: What it is, How it Works, FAQ . Updated August 11, 2023. Accessed March 1, 2024. https://www.investopedia.com/terms/s/single-premium-life-insurance.asp.
2 Value Penguin - What Is Single Premium Life Insurance? The Pros and Cons. Updated February 14, 2024. Accessed March 1, 2024. https://www.valuepenguin.com/single-premium-life-insurance.
In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, and Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400 and Riders: ICC1368050, ICC1368051, ICC1368052, ICC1368053, ICC1368054, ICC1368055. This is a brief product overview only. Coverage may not be available in all states, including New York. Benefits/premium rates may vary based on plan selected. Optional riders are available at an additional cost. The policy has limitations and exclusions that may affect benefits payable. Refer to the policy for complete details, limitations, and exclusions. For costs and complete details of the coverage, please contact your local Aflac agent.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
68000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400.65000 series: In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. B60000 series: In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series: Whole: In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX.Q60000 series: Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Oregon, Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.
Final Expense insurance coverage is underwritten by Tier One Insurance Company. The life insurance policy described herein contains an optional Accelerated Death Benefits Rider that is intended for favorable tax treatment under Section 101(g) of the Internal Revenue Code. Aflac does not give legal or tax advice. Please consult with a qualified legal, tax, and accounting advisor before engaging in any transaction. In AR, AZ, ID, OK, OR, PA, TX and VA: Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (Tier One NAIC 92908).
This is a brief product overview only. Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions. For complete details, including availability and costs, please contact your local Aflac agent. Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Aflac does not offer Universal or Variable Universal life insurance.
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