Understanding the disadvantages of single premium life helps consumers make the most educated decision. Here are the 4 major disadvantages that should be considered when considering single premium life insurance:
- Lifetime distributions or loans of cash values may be subject to income tax and, if received before age 59½, a 10 percent penalty tax.
- The premium may be unaffordable.
- The amount of protection is low relative to the premium paid.
- Surrender of the policy within the first five to ten years may result in substantial surrender charges.
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Reproduced with permission. Copyright The National Underwriter Co. Division of ALM