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 one premium payment funds the policy, including a cash value, for your entire 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.
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 up front maximizes your opportunity for gains by giving the most amount of money as much time as possible to grow.
This kind of cash value life insurance policy is best reserved for retirement or estate planning because of potentially high taxes and fees on early withdrawals.
Should you get single premium life insurance?
Most people shouldn’t 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 — like whole life insurance — with monthly or annual premiums.
→ Learn more about the differences between term life and whole life insurance
How much does single premium life insurance cost?
The minimum upfront payment for single premium life insurance is usually between $5,000 and $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
Coverage amount | Single premium cost |
$100,000 | $21,923 |
$250,000 | $44,766 |
$500,000 | $81,513 |
$750,000 | $119,204 |
$1,000,000 | $152,425 |
Methodology: Approximate rates are calculated in a Preferred non-smoker health classification for a 35-year-old male through single premium universal life policy options with Pacific Life. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 01/01/2024.
Compare that to term life insurance. A healthy non-smoker 35-year-old male would pay $30.81 per month for a 20-year term life policy with a $500,000 death benefit payout — or $7,394.40 over the entire duration of the policy — according to the policycentral Life Insurance Price Index. A single premium life policy with the same coverage amount would cost $81,513 — 10 to 12 times more.
Want to run the numbers for your own situation? 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 and lifestyle conditions.
Speaking with a licensed advisor is the best way to determine which company will be able to provide you with the best policy.
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, 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.
Pros:
Predictable investment growth, protected from market volatility
Opportunity for higher returns versus other cash value options because of high initial premium
Tax-deferred interest growth
Cons:
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 insurance, 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, [1] 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 won’t be your best option if you want a policy with a cash value you can use before you reach retirement age.
→ Learn more about modified endowment contracts
Other types of permanent life insurance products
Aside from single-premium life insurance, there are several other types of permanent life insurance you could consider. Below are some resources with information on the different types of permanent products.
