If you want to know which type of life insurance policy generates immediate cash value, you need to understand that only permanent life policies do it. The types of life insurance policies which give you an immediate cash value include:
- SPL Single-Premium life insurance policy aka “Cash Value Life Insurance policy”
- Whole life insurance policy
- Universal life insurance policy
- IUL Indexed Universal life insurance policy
- VUL Variable Universal life insurance policy
This blog includes the following contents:
- What is SPL Single-Premium life aka “Cash Value Life Insurance policy”?
- What are the advantages of SPL as a life insurance policy which generates immediate cash value?
- What are the drawbacks of buying a single-premium life insurance policy?
- Which life insurance agencies are best for immediate cash value life insurance policies?
- What “not-to-do” while buying a life insurance policy which generates immediate cash value?
- Immediate payout life insurance policy with a case study.
What is SPL Single-Premium life aka “Cash Value Life Insurance policy”?
It is the best policy for generating immediate cash value. For SPL policy, the buyer pays a single large premium. For instance; a 58-year-old lady pays $60,000 as her single premium for SPL policy. It will help her buy a single-premium life insurance policy with $120,000 coverage at least. If a younger and healthier person buys a single-premium policy; they can get much better coverage.
What are the advantages of SPL as a life insurance policy which generates immediate cash value?
There are many benefits:
- You get instant coverage from day one of buying the single-premium life insurance policy
- You do not have to continue premiums any longer
- You secure the financial future of your beneficiaries with 100% guaranteed death benefit payout
- You fully fund your single-premium life insurance policy at the start of your contract
What are the drawbacks of buying a single-premium life insurance policy?
To name a few:
- You cannot adjust or increase the death benefit payout for your loved ones
- After the first heavy premium, the IRS considers your SPL policy as an MEC.
- If you withdraw any loan against the single-premium policy cash value while you’re alive; it won’t be tax-free
- Small 10% interest is applied on the loans you borrow from SPL cash value
- If you fail to pay up a big loan quickly, and you pass away, your beneficiaries will receive death benefit with that unpaid loan amount deducted from it.
Note: All other permanent life insurance policies have a cash value component. These include: Whole life, Universal life, IUL Indexed Universal life, and VUL Variable Universal life insurance policies. They can also offer immediate cash value. But single-premium life insurance policy is best suited for instant coverage and immediate cash value.
Which life insurance agencies are best for immediate cash value life insurance policies?
- State Farm
- Illinois Mutual
- Oxford Life Insurance Company
- Western Southern
- Prosperity Life
- ELCO Mutual
What “not-to-do” while buying a life insurance policy which generates immediate cash value?
The most important “not-to-do” would be to buy single-premium life insurance from a small company. This can lead to very bad results. Two frequent consequences include:
If the Policyholder fails to inform the Beneficiaries
Your death before you inform your dependents about buying single-premium life insurance for them. This leads to a lot of confusion. The bank statements and balance sheets do not display the proof of premium deductions every month.
If your dependents fail to prove that their relative bought a cash value life insurance policy for them. What would you do then? Similarly, if the policyholder forgets to mention the name of a dependent, who would get the death benefit payout? Usually the money goes to the estate of the deceased person. Most of it is paid off for huge estate taxes.
What if the small life insurance agency goes bankrupt?
You must buy a single-premium life insurance policy from reputable firms like State Farm. Otherwise, if the smaller insurance firms go out of business, what would be your alternative? SPL policy requires a huge single premium, if you invest all your money in it and the company finishes, so will your money.
Immediate payout life insurance policy with a case study
Let’s try to understand the example of single-premium life insurance and how it generates immediate cash value for say Julia.
Julia is 35 years old and with an unexpected windfall (winning a lottery ticket), she gets $50,000 instantly. If Julia is sensible and cares for her spouse and kids, she will invest this $50,000 as her first single premium for SPL policy with State Farm.
Since Julia is young and healthy, she can easily buy a single-premium life insurance policy with the coverage of $150,000. She can withdraw loans against the cash value of her SPL policy in times of need.
These loans would be taxable by 10% income tax by the IRS because her policy is fully funded. It exceeds the limit set by the IRS for how much premiums are to be paid in how much time. Thus, the IRS declares her single-premium life insurance policy as an MEC Modified Endowment Contract.
If Julia pays back the loans quickly, she can use the cash value for any emergency while she is alive. After she passes away Julia’s family members named as her dependents, will get a full death benefit payout of $150,000. It can cover their college expenses, their pending credit card bills, their daily household expenditures, Julia’s funeral charges, and any other future costs.
FAQ’s
Which specific type of life insurance policy generates immediate cash value?
Single-premium life insurance generates immediate cash value. It is very risky because you’re investing a large sum at one time. You must make sure you go for a reputable company. It will give you the option of immediate cash value which you can borrow from during your life.