Identification

As its name indicates, a single-premium whole life policy requires one large initial premium payment when you purchase the policy, and you make no additional payments thereafter. Part of the premium goes toward paying the insurance costs, and the rest earns tax-deferred interest. The amount of insurance your single premium can purchase is largely a function of your age. The younger you are, the longer your likely lifespan and the more coverage you get for your money.

Benefits

A major advantage of single-premium whole life over traditional whole life is the speed with which cash accumulates. Because you're starting out with a large lump sum of cash, interest compounds faster and your cash accumulation should be greater over time.compared with a traditional whole life policy. Another benefit is the peace of mind gained from not having to worry about the policy lapsing due to missing a premium payment and that you never need to make another premium payment.

Considerations

A single-premium life insurance policy is an example of a modified endowment contract (MEC), which is a life insurance policy paid in full in seven years or less. In effect, an MEC is considered an investment instrument as much as a life insurance policy, which poses certain tax considerations. Unlike with traditional life insurance, the accumulated cash in a single-premium policy cannot be taken in the form of a low-interest loan prior to reaching age 59 1/2 without penalty, and you must pay taxes on the withdrawal.

Suitability

A single-premium policy may be suitable for you if your other investment needs are covered, and you still have a large sum of money to purchase needed life insurance protection. It is also useful for purchasing insurance coverage for a child or grandchild, because she won't be responsible for having to pay premiums. The tax-deferred feature can be attractive if you are concerned about limiting your tax burden over the years.