Jessica Fox Last Updated On: June 27, 2023

Should You Consider Single Premium Life Insurance?

Single premium life insurance (SPL) or “prepaid” life insurance is a type of life insurance where you pay for the insurance upfront in one lump sum instead of paying monthly premiums. This puts SPL in a life insurance category separate from whole life or term life; rather, it’s considered a Modified Endowment Contract (MEC), which is subject to taxation. With that in mind, SPLs have a cash value that earns interest and a death benefit.

If you’re deciding on whether or not to purchase a single premium life insurance policy, read on to see if it’s right for you!

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Table of Contents

How Single Premium Life Insurance Works

Single premium life insurance isn’t for everyone. The people who stand to benefit from SPL are the wealthy, as it’s a great wealth transfer option. To take out an SPL, you put down a lump sum that earns tax-deferred interest, which leaves your family a tax-free death benefit. The interest earned is based on the rate you signed on for when creating the SPL as well as the current stock market situation.

The death benefit amount that goes to your beneficiaries depends on how much money you put down, how old you were when you created the SPL, and your overall health.

Single Pay Life Insurance Options

There are a few types of single pay life insurance available for you to choose from. What separates each policy option is how insurance handles the cash value. Here are the most common options:
  • Single Premium Universal Life: This SPL option determines your interest rate. Every insurer has a different approach to setting the interest rate, some promise your cash value won’t decrease while others promise minimal interest.
  • Single Premium Variable Life: This option gives you control over investing your cash value. There is no set minimum, so single premium variable life insurance has the greatest potential for growth.
  • Single Premium Whole Life: This SPL function has a set minimum interest rate, and the insurer sets the growth rate for your cash value.
It’s worthwhile to note that if you’re interested in investing, there are many avenues to do so outside of your life insurance policy.

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What’s the Cost of Prepaid Life Insurance?

If you’re looking for a single premium life insurance policy, the starting rate is between $5,000-$10,000. Your age, state of health and gender then influence your premiums.


Unfortunately, because prepaid life insurance exceeds IRS limits — failing the 7-point test — it falls under the MEC umbrella, which is subject to higher taxation. 

A perk of SPL is that you can withdraw from your life insurance. However, keep in mind that removing money from a MEC product results in taxation. If you withdraw money before you turn 59 and a half, you will incur an additional penalty of 10%, plus any insurer administration fees.  

Accelerated Death Benefit

If you have a terminal illness or other qualifying illness and face significant medical bills, you may be able to access your death benefits early to help pay your bills. However, keep in mind that any amount you take out reduces the overall death benefit going to your beneficiaries. 

You may need to add accelerated death benefits to your policy or pay an extra cost to access the funds early. 

Is It Worth Having Single Premium Life Insurance?

Single premium life insurance is not for everyone. SPL is ideal for wealthy individuals who can invest large sums of money because it fails the IRS 7-point test. This means you’ll have to pay income tax, so if you simply want life insurance, stick to traditional policies like a term or whole life.

If you can afford to create an SPL, do yourself a favour and work with a financial advisor or insurance broker to select the best option for your needs.

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It’s more affordable than you think, with premiums starting at $5,000-$10,000. However, don’t forget that modified endowment contracts are subject to taxation.

SPL is a one-time payment life insurance, meaning you pay for the entire cost in one lump sum upfront.

SPL shouldn’t be your first choice if you’re looking for life insurance. Single premium life insurance is for those who can easily afford to part ways with a large sum of money. Traditional life insurance options where you pay monthly are better options for those who want to avoid taxation.


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