What is a Single Premium Life Insurance Policy?

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Once you start planning your financial future and begin evaluating investment opportunities, you will have to choose from a host of products. You chart out your financial goals, risk appetite, and short-term and long-term requirements before finalizing your investments. One of the financial tools you can opt for is a life insurance policy for yourself. Especially if you plan to grow your family, note that they will be financially dependent on you.

Life insurance meaning suggests that your family will get financial assistance in case you are not around. One of the popular options is a term life insurance plan, where you pay premiums that provide you with a life cover to get the death benefit. However, it is not just a matter of knowing which term plan and which insurance company is the right fit for you. It would help if you also evaluated whether you want a single premium plan or a regular premium plan.

Difference between Single Premium and Regular Premium

In general, the understanding of a term life insurance policy is that one can pay periodic premiums. Upon the sudden demise of the insured during the policy term, his family will be eligible to receive a death benefit corresponding to the sum assured. But you can also opt for another type of term life insurance policy where you have to pay a single premium.

In a single term life insurance policy, you pay a lump-sum amount at the beginning of the policy instead of making periodic premium payments. You will continue to enjoy the benefit of a life cover. If paying recurring premiums does not fit your financial planning, this life insurance policy is the ideal fit for you.

Situations to Consider Before Opting for a Single Premium Plan

A single premium life insurance policy plan comes with many benefits. Before you opt for this plan, you should consider various factors. If you face any of these situations, a single premium plan will be the best life insurance policy for you:

● Irregular Income

The general idea is that term insurance plans are beneficial, majorly for salaried persons. And the single premium term insurance plan is a case in point. Thus, if you are a person with an irregular income, you are more likely to benefit from this type of life insurance policy. The option of non-payment of regular premium payments will work in your favor.

● Busy Schedule

When you have a regular term plan, you will have to pay the premium monthly, half-yearly, or yearly. But having a busy schedule may make it harder for you to keep track of the due dates for these premium payments. Plus, in case you forget to pay the premiums on time, you run the risk of your term life insurance policy to lapse. Thus, the best life insurance policy in this scenario would be a single premium plan. You will just have to purchase the plan and relax.


● Have a Lump-sum Amount

The best life insurance policy will be the one with a single premium if you are in possession of an idle lump-sum amount. So, whether you receive this amount as an inheritance, as a bonus, or as windfall gains from your business, buy this kind of life insurance policy. It is a great way to put your idle money to use.

● Long-Term Viability

Before you purchase this life insurance policy, you should evaluate if a single premium term plan makes sense for you in the long run. It is because if you are not around after a few years of opting for the policy, the premiums would already have been paid. And it would be irrespective of the term of the policy. But in the case of a regular premium plan, you would have paid only two annual premiums. So, your nominee will still have access to the full death benefit in the form of sum assured.


Benefits of Single Premium Life Insurance Policy

These are the two main benefits of the single life insurance policy:

1. Eliminates the Chance of Policy Lapse

While it removes the hassle of keeping track of premium payments, it also allows your loved ones to meet their life goals in your absence. This kind of life insurance policy eliminates the chance of your policy lapsing. Since the premium payment would already have been made upfront, the policy will remain active throughout its tenure.

2. Tax Benefits

As per the Income Tax Act and under Section 80 C, the premium paid for a term life insurance policy is eligible for deduction. Moreover, you can opt for a plan with maturity benefit. This maturity benefit, death benefit, and surrender benefit will also be eligible for tax savings as per Section 10 (D).
To conclude, this policy can be a boon for you if you plan to secure your family but do not want to take on long-term commitments. It will be beneficial for you to prepare a list of your requirements and design a suitable action plan accordingly.

Before opting to buy an insurance plan, examine the features and benefits of the policy. Make sure to compare the various plans available by different insurers before you opt for anyone.

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