Life insurance glossary
Single premium
Plain-English definition
A policy you fund with one lump-sum payment up front instead of ongoing premiums.
Pay once, done — but the tax rules deserve a close look.
One payment, fully funded
A single-premium policy is funded with one lump-sum payment at the start, after which no further premiums are due. The policy is immediately paid up. This structure is used with permanent coverage and is often chosen by people who have a lump sum available — from a maturing investment, an inheritance, or a business sale — and want to convert it into lifelong coverage and, typically, cash value.
Because the entire cost is paid at once, a single-premium permanent policy usually starts with meaningful cash value right away, rather than building slowly over years. That immediacy is part of the appeal for estate-planning purposes.
Watch the tax treatment
Funding a policy with a single large payment can push it against the limits of the exempt-policy rules under the federal Income Tax Act, which govern how much cash value can accumulate on a tax-advantaged basis. A policy that exceeds those limits can lose part of its tax-preferred treatment, so single-premium designs need to be structured with the exempt test in mind.
The tax picture also matters if you later access the cash value, since amounts above the adjusted cost basis can be taxable. Given the sums usually involved, a single-premium strategy is one to plan carefully with a licensed advisor rather than pursue on assumption.