Lasting Legacy with Maximum Benefits: Single-Pay Whole Life

by Kasey Gammons, LifeTrends Sr. Analyst

What do you do with that dusty old savings account, you know, the one that you’ve been paying on for who knows how long? It’s just sitting there, raking in generally sub-par interest and not really doing anyone a bit of good. After all, retirement is covered, the kids are out of the house, and things are basically in good order. Your gaze turns outward and you are looking toward the golden years. We aren’t running a magazine ad here, but there is a specific product that is pertinent to this narrative: Single-Pay Whole Life (SPWL).

What is it?

A SPWL policy, besides the obvious (i.e. one-payment for a whole life contract), is intended to maximize a death benefit, especially when someone has a large reservoir of monetary assets that is not necessary at present or is parked in some low rate of return taxable investment. Examples of safe but low-interest earning vehicles might include savings accounts as mentioned above, money market accounts, or certificates of deposit. When compared against these financial instruments, SPWL will provide greater investment returns over the long-haul, especially when considering taxation on the capital gains from the other options. Since there is a substantial lump sum paying for a fully-guaranteed policy, almost all such policies fall into the modified endowment contract (MEC) category, incurring a tax penalty if a cash withdrawal is taken out.

Who is it for?

Since the name of the game is the death benefit, there are several reasons why this might be ideal for a client. The low-hanging fruit is gifting the death benefit to children or grandchildren on the tax-free advantage all life insurance shares. Another reason might be to maximize legacy gifts to charity or other non-profit institutions. Repositioning assets from a stock portfolio experiencing or expected to undergo losses is another option, given the inherent lifetime-guaranteed nature of whole life; that is, it’s much, much safer than the market. It can also substantially aid in final expense planning or estate planning. Despite being a MEC, potential withdrawals or loans are available in case of emergencies. As a result, the typical client is generally fiscally conservative, middle-aged or older (typically ages 40-80), and does not want any level of risk with a fully-guaranteed and completely-paid for life insurance policy.

Which Carriers Offer?


Parting Thoughts

As we’ve seen, SPWL fulfills a very specific need with a precise client profile in mind with plenty of carriers able to provide this particular solution. It should be noted that hybrid life/long-term care combination products also compete in the same general space, as hybrid products are frequently paid-up on a single-premium basis. Depending on expectations of needs, costs, and planning goals, the choice will largely depend on whether the emphasis will be on the long-term care or life insurance. However, for the safe bet with a guaranteed, tax-free, and “set-it-and-forget-it” death benefit, SPWL is ideal for the right client.

[1] National Life’s policy is recurring whole life that can be illustrated on a single-pay basis. Other carrier’s products are true single-premium policies.

[2]Only available in nine states.