Single-Premium Insurance: A Different Way to Pay for Coverage
Single-premium programs enable you to pay future annual premiums on an existing or new policy by purchasing a single-premium immediate annuity (SPIA).


The volatile markets of the past few years have compelled many investors to alter their asset allocations and replace equity positions with Treasury bills or other safer, short-term investments.
If you are one of these individuals, here’s an idea that may prove more productive over time.
Use some of these funds to purchase the whole life, disability or long-term care insurance you’ve been contemplating. Or pay for any existing coverage with a single-premium approach that will enable you to avoid annual premium payments for as long as you own your insurance.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How does single-premium insurance work?
As its name implies, a single-premium program offers you the option of paying for your insurance with a single, up-front payment, as opposed to annual premiums. In the past, these programs were available only through some insurance providers and then only on new policy purchases. In other words, a single up-front payment could not be used to fund premium payments on an existing policy.
Today, however, there are single-premium programs available that enable you to pay future annual premiums on an existing or new policy by purchasing a single-premium immediate annuity (SPIA). An SPIA generates a guaranteed stream of annual income that begins within a short time after you purchase it (typically 12 months). With this approach, you achieve a number of benefits beyond the convenience of having your premium payments made on time every year.
- Cost effectiveness. The payment required to purchase an SPIA capable of funding future insurance premiums can be substantial. However, it can also be less than the cost you would incur by paying your annual premiums out of cash flow.
- Greater flexibility. With traditional single-premium programs, you are subject to a 10% IRS penalty on withdrawals from your policy’s cash value that exceed the total premiums you paid or loans taken under the age of 59½. With an SPIA-based approach, you can access cash value without penalty.
- Cash management opportunities. The income offered by SPIAs is subject to prevailing interest rates. In a higher rate environment, you have the opportunity to lock in an attractive rate and generate the income required to pay your annual insurance premiums with a smaller up-front commitment.
- More choices. You do not have to purchase your SPIA from the same provider that issues your insurance policy. Rather, you are free to choose the SPIA that offers the most flexible terms available.
How an SPIA works
Massachusetts Mutual Life Insurance Company (MassMutual) recently provided this example of how a single premium with an SPIA compares with simply paying insurance premiums on an annual basis:
Assumptions:
- You’re a 55-year-old male planning to retire at age 65.
- The whole life policy you’re thinking about acquiring requires premium payments of $20,000 annually for the next 10 years.
- You purchase an SPIA that will begin generating annual income payments of $20,000 in a year from now.
- The cost of your SPIA is $150,000. In addition, you pay the first year’s premium on your whole life policy ($20,000) for a total expenditure of $170,000.
Comparing your options
Without the SPIA:
- $20,000 annually for 10 years
- $200,000 total premiums paid
With the SPIA:
- $150,000 up-front payment
- $20,000 for first-year policy premium
- $170,000 total payments
- $30,000 savings
A few caveats
- The income generated by SPIAs is partially taxable. In the example above, it is estimated that $3,333 of each $20,000 annual annuity payment is taxable at the annuity owner’s individual tax rate.
- You may withdraw cash from your SPIA, if you need it. However, withdrawals will reduce the income payments made by the SPIA, and you will have to cover any shortfall in premium payments made to the insurance provider. In addition, the annuity provider may impose surrender charges.
- If the annuity owner passes away, his or her beneficiaries can elect to receive the remaining income payments or a lump sum payment.
Clearly, single-premium insurance programs can be complex, but they merit consideration, especially if you:
- Need insurance but have been putting off acquiring it.
- Are receiving a financial windfall or inheritance that can be used to fund your initial, up-front payment.
- Have significant dollars allocated to cash equivalents or other low-yielding investments in an effort to avoid stock market volatility.
Implementing an SPIA strategy can provide you with the flexibility to apply this approach to existing policies, as well as any new coverage you may be contemplating.
Related Content
- Four Ways Life Insurance Can Grow and Protect Your Wealth
- Life Insurance Really Can Be Affordable and Uncomplicated
- Are You Too Young for Life Insurance?
- What Is Indexed Universal Life Insurance and How Does It Work?
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Stefan Greenberg is a Managing Partner who has been with Lenox Advisors since 2005. Stefan is responsible for working with both corporate and high-net-worth individual clients of the firm. He specializes in comprehensive financial planning, wealth management, estate planning and insurance services for individual clients. Additionally, he helps businesses attract, reward and retain top-level employees through the use of tax-efficient techniques.
-
We bought a vacation home for retirement, but we never use it. Should we sell, or rent it out and wait for mortgage rates to come down?
We ask financial planning experts for advice.
-
Is a CD a Smart Money Move Amid Potential Rate Cuts?
Knowing what's coming can help savers prepare and maximize returns.
-
A Financial Professional's Take on Long-Term Care Insurance: Buy or Not?
Unless you have about $6,000 burning a hole in your pocket every month, you should make a plan in case you need long-term care. Luckily, you have options.
-
How to Unearth Sustainable Investment in Mining: A Financial Professional's Guide
Mining is likely to play a critical role in the global transition to more environmentally friendly energy resources. Here's how you can balance the opportunities and the risks.
-
Don't Be a Sucker: The Truth About Guarantor and Cosigner Agreements
There are significant financial and relationship risks involved if you agree to be a cosigner or guarantor. Make sure you perform your due diligence, and know exactly what you're getting into, before agreeing to such a commitment.
-
The Hidden Risk Lurking in Most Retirement Plans: Human Behavior
What's one of the differences between a good financial adviser and a great one? The ability to use behavioral coaching to guide clients away from emotional decision-making and toward retirement success.
-
Addressing Your Clients' Emotional Side: Communication Techniques for Financial Advisers
Rather than focusing only on financial plans, you can better serve your clients — and grow your business — by learning what to say and do when a client gets anxious or emotional.
-
Seven Hidden Downsides of Dividend Investing, From a Financial Adviser
Dividend investing could be draining your wealth with unexpected costs and limited growth potential. Here are some downsides, along with smarter strategies to take control of your retirement income.
-
How to Position Your Business for a Lucrative Exit Despite Private Equity's Slowdown
As private equity firms seek strongly performing companies, crafting a narrative about your business' high-quality assets and future opportunities can make a lucrative sale possible.
-
Don't Regret Buying a Home: An Expert Guide to Navigating Today's Tough Housing Market
Whether you're a first-time buyer, want to upsize/downsize or move closer to work or family, it's critical to stay within your budget and have an emergency fund.