Certificates of Deposits (CDs) vs. Single Premium Life Insurance (SPL): Which is the Best Option for Long-Term Savings and/or Passing on to Your Heirs?

Years ago, a Certificate of Deposit (CD) was the “go-to” for people who had extra cash that they did not immediately need and wanted to save long-term for themselves or to pass on to their heirs. While it’s still a relevant and safe option, it’s no longer the only option, nor is it always the best. There are now other, just as beneficial, and sometimes better, long-term savings options to consider such as Single Premium Life Insurance. Before going into their differences, it’s important to understand what each is:
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A SinglePremium Life (SPL) is a type of insurance in which a lump sum of money is paid into the policy in return for a death benefit that is guaranteed until you die. The size of the death benefit depends on the amount invested and the age and health of the insured.
 
A Certificate of Deposit (CD) is a savings certificatewith a fixed maturity date (terms usually from 6 to 60 months) and a fixed interest rate. CDs are generally issued by banks and credit unions and are insured by the FDIC or NCUA. 
 
Both a Single Premium Life and Certificate of Deposit are often used by people who want to leave a legacy to their children or a charity or save it for themselves in case of an emergency.

The key benefits to a Single Premium Life vs. a CD:

• The growth of a Single Premium Life Insurance policy is tax deferred and the death benefit is tax free. In a CD, the earnings are taxable each year as income. 
• The immediate cash value of a SPL policy is the amount of the premium and there is no surrender value. The SPL leverages the death benefit to 2 to 3 times the amount of the premium. This means that the beginning cash value is the same as the premium and is based on an index such as the S&P 500, which means the account will be credited up to 10% per year with the 10+ year average being about 6% with a 3% guarantee over any ten year period. 
• A SPL policy can immediately increase the amount of your legacy compared to the slow growth of a CD. A CD pays in the range of 1 to 2%, depending on the financial institution and length of term. 
• A SPL provides better liquidity than a CD. 
• A SPL provides no cost to surrendering the policy.

In summary, a Single Premium Life offers the safety of a CD, with better liquidity, a better return, and a larger legacy to the beneficiaries. The only down side is that the insured must medically qualify and be in average health. A SPL must also be purchased with after-tax money.

For a complimentary financial or life insurance consultation, please contact me at 909-714-1830 or at russ@russmorrisfinancial.com.