Single premium whole life policiesBlog added by SarahB on September 12, 2009
SarahB

SarahB

Joined: November 06, 2006

Many experts on the site have said that a single premium whole life policy builds cash value, but what’s important is why. Read excerpts from experts on the site for a refresher course on this valuable savings vehicle.

In his latest article, Learn the benefits of single premium whole life policies, expert contributor Roccy Defrancescolong term care insurance (LTCI) policy. Most life insurance policies are funded for two reasons: death benefit or cash accumulation. A SPWL policy is funded partially for the death benefit, but it is also funded to provide significant "living" benefits (accelerated benefits for long term care expenses or if the client has a critical or terminal illnesses). asks and answers, What is a single premium whole life policy?

A single premium whole life policy is designed to act partially like an annuity and partially like a
High early cash value -- For those SPWL policies that do not have the ROP option, some are designed to have high early cash value. These policies act like money market accounts, in that they have a minimum guaranteed rate of return. So, policies with low surrender charges should in very short order (a few years) have a cash surrender value (CSV) equaling 100 percent of the client's premium, and then after that, the account balance should increase.

Again, the market for this product is a senior who is scared about LTCI expenses but does not want to pay for LTCI coverage they may never need. As such, having a policy with a high CSV is needed in order to make the client comfortable, because the insured can access all of the money paid in premiums shortly after funding.
Columnist Debie Knowles, expert of the Medicare Supplements subtopic, answers the question, “Why single premium whole life?” in the article, “Making the most out of the 1035 exchange with single premium whole life

Single premium whole life (SPWL) insurance has many great benefits and can serve the needs of a variety of clients. These policies have living benefits as well as death benefits and they build cash value.

For the person whose primary interest is wealth transfer -- the transaction of leaving an inheritance for posterity -- SPWL products have guaranteed cash values and death benefits, and are tax-efficient vehicles for leaving a legacy. They allow policyholders to transfer portions of their liquid assets to heirs, charities or other organizations, or create education or trust funds in an environment protected from taxes and probate. For example, for a healthy 65 year old, a one-time deposit of $100,000 into a single premium whole life policy could result in a death benefit of approximately $200,000 or more to beneficiaries -- income-tax free.

They are also effective tools for covering the high costs of final expenses. Owners of SPWL policies can have peace of mind in knowing that their loved ones will be provided for and have protection from outstanding debts or lost wages after the death of the primary wage-earner.
 
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