A single premium whole life policy is characterized by:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A single premium whole life policy is purchased with one lump-sum payment at issue, so the policy is fully paid up and no further premiums are due while the death benefit continues for life or to maturity. It is one of the recognized premium payment patterns, along with level premium, limited-pay, and modified premium designs. Because the entire premium is paid up front, the policy builds cash value immediately and there is no ongoing premium obligation. It is often used where a client has a large amount of cash and wants permanent coverage without future payments. The death benefit remains income tax free under IRC Section 101(a), as with other life policies.
Why the other options are wrong
- Level premiums paid for a fixed number of years describe a limited-pay whole life policy, in which the owner pays for a set period but coverage continues for life; that is not a single premium design.
- Increasing annual premiums describe annually renewable term coverage, where the premium rises with attained age; a single premium policy has no future premiums at all.
- Paying premiums until age 65 with coverage continuing to age 100 describes a life-paid-up-at-65 limited-pay design, not a single premium policy.
Memory hook
Single premium = one check and the policy is paid for life. Set it and forget it.