Single premium life insurance (SPL), also known as prepaid or single pay life insurance, allows you to pay for your entire policy up front, instead of paying a premium in monthly or annual installments. That premium funds the policy, including a cash value, for your lifetime.
Because the policy is funded by one lump-sum payment, it rarely works like a traditional life insurance policy. Instead, SPL is almost always a modified endowment contract, which comes with complex tax restrictions.
Most people should avoid single premium policies. In special cases when someone has a large lump sum to invest, like an inheritance, single premium can be worth considering with the assistance of a financial advisor.
The first and only premium payment can start at $5,000 for a low coverage amount.
Single-premium policies come with a cash value that earns interest over time.
The IRS categorizes these policies as modified endowment contracts, which come with strict tax rules.
Most people should buy standard term or whole life insurance instead of a single premium policy.
How does single premium life insurance work?
Your single premium payment guarantees your loved ones a death benefit and fully funds your cash value account for life. The size of the death benefit depends on your payment amount, age at the time of application, and overall health.
The cash value earns tax-deferred interest at a rate set by your insurer. Fully funding your cash value upfront maximizes your opportunity for gains by giving the most amount of money as much time as possible to grow. This kind of cash value policy is best reserved for retirement or estate planning because of potentially high taxes and fees on early withdrawals.
This kind of cash value policy is best reserved for retirement or estate planning, because many single premium life insurance policies become modified endowment contracts, since they’re funded all at once. These contracts come with potentially high taxes and fees on early withdrawals. Single premium life insurance can be used in conjunction with other estate planning tools, like irrevocable life insurance trusts, to preserve your assets after your death or help offset estate tax.
Should you get single premium life insurance?
Most people should not get a single premium policy. The financial regulations around modified endowment contracts mean they’re best used for specific wealth planning purposes with the guidance of a certified financial professional.
If you’re looking for life insurance to provide financial protection for your family, you’ll spend much less on term life insurance, which lasts only as long as you need it — typically until retirement. If you need lifetime coverage or a cash value account, it’s simpler to manage a permanent policy with monthly or annual premiums.
How much does single premium life insurance cost?
The minimum upfront payment for single premium life insurance is usually $5,000 to $10,000. For that price, you’ll get a death benefit of less than $100,000. How much coverage your premium equates to is based on insurance risk factors like your health, age, and gender. That means a younger and healthier person could pay the same single premium amount as an older person, but have a higher death benefit.
Generally speaking, the cost of single premium life insurance will depend on how much money you’re intending to use for the first and only payment, which can be tens of thousands, and even hundreds of thousands of dollars.
Single premium life insurance rates by coverage amount
Single premium cost
Methodology: Approximate rates are calculated in a Standard non-smoker health classification for a 35-year-old male through single premium universal life policy options with Protective Life. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 12/01/2022.
Compare that to term life insurance, for which a 35-year-old male can get more than five times the coverage for just $30.36 per month ($7,286.40 over a 20-year policy). Want to run the numbers for your circumstances? It’s hard to calculate the cost of single premium life insurance on your own, but an insurance agent can help you compare options and pricing.
Best single premium life insurance companies
Single premium life insurance is a complex product that is best for niche situations. As a result, the best company for you will depend on your specific financial needs and how much money you have available to use for your single premium.
Much like with other types of life insurance, your health and lifestyle can impact which company is best for you, too, since each company assesses risk differently when it comes to health conditions.
If you know for certain you’re looking to purchase a single premium life insurance policy, we work with multiple companies who offer this product. At Policygenius, we have a team of experts who can help you apply for single premium life insurance options, as well as other types of permanent life insurance. Our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Pros and cons of single premium life insurance
If you’re able to consider a single premium policy, then it’s worth weighing whether the benefits outweigh any downsides for you. Because this type of life insurance coverage can get complicated, ask a financial advisor to talk you through the options in the context of your personal finances and retirement goals.
Predictable investment growth, protected from market volatility
Opportunity for higher returns vs. other cash value options because of high initial premium
Tax-deferred interest growth
Low death benefit for your initial premium compared to traditional policies
Complex tax implications and penalties for early withdrawals
Interest growth is often lower than traditional investment and retirement accounts
Types of single premium life insurance
There are three common types of SPL, which differ mainly in how the cash value earns interest:
Single premium whole life (SPWL): The cash value grows at a rate set by your insurer, similar to a savings account. Insurers often guarantee a minimum interest rate, but the minimum can be zero (i.e., a guarantee that you won’t lose money).
Single premium variable life: Like standard variable life insurance, you choose how to invest your cash value. Options are managed by your insurer and include index funds and money market accounts. This type of SPL has no guaranteed minimum, so it has the highest investment risk, but greater growth potential.
Single premium universal life: With universal life, your provider sets your interest rate. There are different kinds of universal life insurance, so each provider has its own method for setting interest rates and some insurers guarantee a minimum interest, while others only guarantee that you won't lose cash value.
How much the cash value can grow depends on the level of investment risk in your plan and how high your upfront premium is. It’s best to max out traditional investment accounts like an IRA or 401(k) before considering using life insurance as an investment. SPL in particular is best reserved for less common scenarios, like after inheriting a large amount of money, and even then only with a professional’s guidance.
What is a modified endowment contract (MEC)?
A modified endowment contract (MEC) is a life insurance policy with a cash value account that has been funded beyond federal tax limits. The tax limit is based on the IRS’s 7-pay test,  which looks at your payments in the first seven years of your policy compared to the amount you’d need to spend to pay it in full. Once you exceed that amount, your cash value policy loses certain tax privileges and can’t regain them.
In most cases, a single premium policy automatically becomes an MEC because the initial premium is so high. If you want to avoid that designation, you’ll need to work closely with an insurance agent and financial professional to determine how much you can actually put into the policy.
Withdrawals from a modified endowment contract are subject to income tax and, if you withdraw before age 59.5, an additional 10% penalty. Your provider will charge administrative fees on top of that. All of this means that a single premium policy isn’t the best option if you want a cash value you can use before you reach retirement age.
→ Learn more about modified endowment contracts
Other types of permanent life insurance products
Have questions about other types of permanent life insurance? Below are some resources with information on the different types of products.
Frequently asked questions
How much does a single premium life insurance policy cost?
Premiums start at $5,000 for small death benefits under $100,000. How much coverage your initial payment buys you depends on your health, age, and other risk factors.
Is single premium life insurance taxable?
Withdrawals from the cash value are taxed as income, and you’ll pay an added 10% penalty for withdrawals before age 59.5. A lump-sum payout isn’t taxable for your beneficiaries.
Is single premium life insurance a good investment?
Single premium life insurance is not a good investment for most people since it requires a large sum of money up front and withdrawals can have tax consequences. It’s best used in special circumstances with the help of a financial advisor.