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Fact Checked
Fact Checked
Updated: Jul 20, 2023, 11:21am
Life insurance policies typically have ongoing, regular premium payments. Single premium life insurance policies are specifically designed to be funded by one single premium payment.
For example, if you receive a windfall like an inheritance or a bonus at work, you might choose to buy single premium life insurance. You can secure a guaranteed death benefit and your policy builds cash value over time.
However, single premium life insurance has stricter tax consequences than most life insurance policies, so it’s important to understand how it works before you buy a policy.
Single premium life insurance (SPL) is a type of life insurance policy that allows you to make one lump sum payment rather than monthly, quarterly or annual payments. That lump sum payment puts the policy in force. Part of this money is invested by the life insurance company and grows over time. When you die, your beneficiaries can make a claim for the death benefit from the policy.
SPL is also called prepaid or single pay life insurance. The premium you’ll pay for an SPL policy can be influenced by several factors, such as your:
The death benefit amount depends on the size of the lump sum and your health. The younger and healthier you are when you pay the lump sum, the higher the death benefit will be.
For example, Illinois Mutual Life Insurance Co. estimates that a $60,000 single premium whole life insurance payment would result in a $121,032 guaranteed death benefit for a 58-year-old woman. Younger buyers could get a higher death benefit amount because the insurer will have more time to make money by investing the premium payment.
When a life insurance policy is purchased with one lump sum, it becomes a modified endowment contract.
A  modified endowment contract (MEC) is a type of life insurance policy that has been funded with premium payments in excess of the limits set by the Internal Revenue Service (IRS).
The IRS converts a life insurance policy into an MEC if you exceed IRS contribution limits. That means it no longer meets the requirements of IRS Tax Code 7702 that allow it to qualify as a life insurance policy and it loses some of its tax advantages.
Because a single premium life insurance policy is fully funded upfront, it’s considered an MEC by default.
You can take money from the cash value of a single-premium life insurance policy. Withdrawals above the cost basis—meaning the total premiums paid—and policy loans prior to age 59 1/2 are subject to a 10% income tax penalty. But the death benefit is still tax-free for beneficiaries.
Almost any type of cash value life insurance can be purchased with a single premium if the insurance company offers single pay as an option.
Before buying single-premium life insurance, be sure to know what some of the benefits and downsides are of this type of life insurance.
Single premium life insurance policies with living benefits can help ease the burden of unexpected medical costs. A living benefit allows you to take cash from your own death benefit if you have a medical condition that qualifies. Although living benefits vary by policy, many life insurance companies offer these:
The cash value accumulation options for single premium life insurance policies depend on the type of insurance policy you choose.
Compare Policies With 8 Leading Insurers
You can access the cash value in a single premium life insurance policy by taking a life insurance policy loan, making a withdrawal or surrendering the policy.
If you withdraw funds from the policy, any gains above the amount you have paid in premiums will be subject to income tax. This income tax also applies to policy loans if they’re not paid back. Additionally, you’ll pay a 10% penalty to the IRS if you withdraw or borrow against your cash value before age 59½.
As with any type of life insurance policy, loans that aren’t paid back and withdrawals reduce your death benefit amount.
Single premium life insurance policies can be a good option for individuals who have a lump sum of cash and want to quickly secure a death benefit for their beneficiaries. Here are some scenarios in which it may make sense to buy an SPL policy:
Single premium life insurance is not a good choice for everyone. For example:
Carefully consider your individual situation before making any decisions about single premium life insurance policies. Consulting with a financial advisor can help you determine whether this type of policy is appropriate for you.
Single premium life insurance is not intended to be an investment. It is an insurance policy that has a cash value. While the cash value can grow on a tax-deferred basis, the policies are not primarily designed as an investment vehicle.
Life insurance is often sold as an “investment” by agents and financial advisors because a policy’s cash value can grow on tax-deferred. However, it’s important to remember that the primary purpose of life insurance is to provide financial protection for your loved ones in the event of your death. The cash value component is a secondary benefit.
The cost of single premium life insurance depends on your age, health and the amount of coverage needed. The minimum single premium is usually at least $5,000 but may be higher. For example, Western-Southern Life Assurance Co. has a $10,000 minimum payment for single premium life policies.
The cost of life insurance usually goes up as you age, so it’s prudent to buy life insurance when you’re younger, no matter what type of life insurance you purchase.
The main benefit of a single premium life insurance policy is that it allows you to get fully funded permanent life insurance coverage with one lump sum payment. In return, your beneficiaries get a guaranteed death benefit and you don’t have the hassle of ongoing premium payments. SPL is commonly used by those who have received an inheritance or unexpected windfall.
New York Life, State Farm and Pacific Life are four insurance companies that advertise single premium life insurance. State Farm, for example, has coverage amounts starting at $15,000. However, almost any whole life, variable universal life or indexed universal life insurance policy can be funded with a single premium, even if it’s not officially sold as a “single premium life insurance” policy.

Tony Steuer, CLU, LA, CPFFE is an internationally recognized financial wellness advocate, award winning author, top ranked podcaster, speaker and Chief Education Officer at Females and Finance. Tony’s mission is to change the way we think about money.