Rajesh and Suresh are two best friends who always love to do things together. Whether it is about purchasing a home in the same locality, going on a trip or buying a car, they have done so many things together. Similarly, when it comes to buying a term insurance policy, they also buy it together. But there is one difference. While Rajesh goes with single premium term insurance, Suresh buys regular term insurance.

Now you must be wondering when both have bought a term insurance, so where is the difference? The difference lies in the premium payment term. While one has selected single premium, the other has preferred regular premium plan.

Let’s get into the details to know more about the single premium term insurance and whether one should go with a single premium policy or regular premium term policy?

What is single premium term insurance policy?

Want to get over the entire process of buying the term insurance in one go because you have some extra money? A single premium insurance policy is the right thing for you. As compared to a regular premium payment plan, where the premium is paid quarterly or annually, the single premium policy allows you to pay the entire premium in one go.


Benefits of single premium term insurance policy

It is apt for those who do not want to remember their premium due date. Since the entire premium amount is paid up front, you don’t need to remember the premium due date and it also reduces the chances of getting the policy lapsed due to nonpayment of the premium.

Like regular premium insurance policies, single premium plans also offer tax benefits. The premiums paid on policies are eligible to get an exemption of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Besides this, death benefits received by the nominee are also tax- free. God forbid if something happens to you, your nominee will get a tax-free life cover amount. Also, like regular premium policies, one can buy single premium policies online. For instance, ICICI Pru iProtect Smart, an online term insurance policy, allows you to pay the premium of the entire term in one go. As it also offers critical ailment cover, this policy gives one more tax benefit under Section 80D, apart from the above tax exemptions.

Does it make sense to go for a single premium term insurance policy?

As discussed above, in both the cases, you are entitled to get tax benefits. But here is the catch. While, in single premium policies you pay the entire premium in one go, therefore, you get one-time tax benefit, however, in a regular term policy, you can avail tax benefits every year till the time the premium is paid.

Further, term insurance policies pay death benefits to your nominee in case of your sudden death. However, in the case of single premium policy, if you die in the first few years of buying the policy, you would have paid the premium of the entire tenure which could have saved in case of a regular premium policy. If you had invested this amount elsewhere, let’s say in a fixed deposit, you could have earned yourself a minimum 8% interest on it. It means your family would have got double financial protection in the form of term insurance and bonus in the unfortunate event of your death.

When should you go for a single premium insurance policy?

Most people go for a single premium insurance plan when they have a lump sum amount with them. It may be in the form of an annual bonus received from the employer, tax refund, cash gift from relatives or windfall gains from a business. Such people can considerbuying a single premium insurance policy if they think that they are underinsured. Also, if you are a businessman, you might not have a fixed cash flow. Hence, you can opt for a single premium insurance plan whenever you get a lump sum amount.

Should you go for a single premium insurance policy?

Opt for the single premium policy only if you know you can afford it. You should avoid putting excessive weight by pulling out money from your current investment. Also, if you are getting a higher income, paying the premium in one go should not bother you. However, if you are in the middle-income group, it is better first carefully to analyze your financial condition before opting for the single premium policy. In the above example, Rajesh is a businessman who prefers to pay the entire premium in one go, whereas, Suresh is a salaried professional who decides to pay the premium annually.

So as per your requirements and financial conditions, choose the premium payment tenure of your term insurance policy.

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One response to “A Brief Guide to Single Premium Term Insurance Policy”

  1. Vijay Kumar Dadoo says:

    It is all incorrect. The Single premium policy is the worst policy. There is five years lock in in these single premium policies. The money received whether at maturity or surrender is added to the Income of the Insured in the year of withdrawal. Any person buying this single premium policy, must think many times not only twice before going for them. I am available at 09412070828

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