However, did you know that there are certain term plans that allow the payment of a premium in one go? These are called single premium term plans. Instead of paying the premium frequently throughout the tenure, a single premium plan requires the policyholder to make a lump-sum one-time payment when the plan is bought. Are you wondering if such a plan may be suitable for you? Learn more about single premium term plans below to make the right decision.
What is the Need for a Single Premium Term Plan in India?
A single premium term plan is ideal for individuals who have a lump-sum amount. By making a one-time payment, you can enjoy uninterrupted coverage without the worry of recurring premiums or policy lapses due to missed payments. This type of plan offers peace of mind, especially for those who want long-term protection without the burden of managing monthly or yearly premiums. It’s a smart choice if you want to secure your family’s financial future at once and avoid the risk of policy discontinuation. With no need to track due dates, a single premium term plan combines convenience, security, and financial discipline in one effective solution.
Benefits of Single Premium Term Plans
To begin with, let’s look at some common benefits you may come across in single premium term plans:
Hassle-free term insurance
A single premium term plan may be particularly suitable for those looking to buy hassle-free term insurance coverage. All you may have to do is pay the premium once when you buy the plan. You may then stay worry-free about having to maintain the plan since the coverage of the plan continues regardless.
Lesser chances of policy lapsing
With a single premium term insurance plan, the chances of the policy lapsing due to non-payment of the premium may get eliminated. Since there may be no need of paying regular premiums in the first place, there may be no scope for a grace period to become active or the policy to lapse. The grace period refers to the time frame the insurer may provide to pay the premium once the premium payment date has passed.
Tax benefits
The lump-sum premium of your single premium term insurance plan may also be eligible for a tax deduction of up to Rs 1.5 lakhs as long as it may not exceed 10% of the death sum assured. Section 80C of the Income Tax Act of 1961 allows for such deductions. To be eligible for this deduction, you have to pay tax under the old tax regime. The 10% limit may only be applicable for policies bought after 1st April 2012. Death benefit received under policy will be tax exempt in the hands of recipient. Any gain from term insurance policies with return of premium option issued on or after 1 April 2023 with annual premium more than Rs. 5 lakhs is taxable in the hands of recipient. Tax benefits are subject to changes in tax laws and terms and conditions.4
Sense of assurance
Single premium term insurance is one of the plan if chosen in your portfolio, may assures that your loved ones may be financially safe even in your absence. By paying a premium once, you will be able to secure their future and assure yourself of better peace of mind.
Things to Consider While Purchasing Single Premium Term Plans
While a single premium term plan offers convenience, there are a few important factors to keep in mind before making a decision. First, tax benefits under Section 80C may be limited. If your premium exceeds 10% of the sum assured, you may not qualify for tax deductions. Secondly, single premium plans involve a one-time payment, which may not suit individuals who prefer the flexibility of spreading out payments over time. Regular premium plans, by contrast, allow for periodic contributions that some policyholders may find easier to manage.
Most importantly, ensure you choose a plan that is cost-effective and aligns with your long-term financial goals. Since you are making a one-time investment, comparing multiple options and understanding charges and benefits thoroughly is essential for getting the best value from your insurance.
When Should You Opt For A Single Premium Term Insurance Plan?
By now, you may know the benefits of a single premium term insurance plan. However, you may be wondering if and when would be the right time to buy it.
Ideally, a single premium term plan would be a suitable buy:
If you are dealing with irregular income
Those with irregular incomes may find it a bit challenging to afford the regular premiums of a term plan, even though they may be affordable. You may have a good amount of money at the beginning of the year. However, by the time the premium payment date arrives, your salary may still be pending. Irregular income should not have to mean you go by without the coverage of term insurance. A single premium term plan may be a preferable solution here.
If you have a busy schedule
Having a busy schedule may mean you may miss out on your premium payment. Even the grace period may go by sometimes and your policy may lapse.
With a single premium plan, this may not be the case. Simply pay the premium once and you may receive coverage for the entirety of the tenure.
If you have a lump sum amount
Consider that you have received a substantial bonus at your workplace or have come across a large sum of money via inheritance. While there may be multiple ways you would want to spend that money, a useful option you may want to consider is a single premium term insurance plan. The one-time premium payment may ensure a lifetime’s worth of financial security for your loved ones. Let’s understand this better with an example:
Kavya was a well-established freelance writer earning a substantial income. Due to the nature of her freelancing job, her income tended to be irregular. However, it helped her contribute financially to her household and she wondered about the challenges her parents may face if she were no longer present.
To resolve her worries, her friend advised her to opt for a term plan. However, she was hesitant since it meant having to pay regular premiums on time. Her infrequent salary may not allow her to do that. While researching, she came across single-premium term insurance and found it a suitable option. She saved up on her salary for the next few months and bought a single premium term plan to secure the financial future of her family.
How to Choose the Single Premium Term Insurance Policy?
Choosing the right single premium term insurance policy ensures financial protection for your family with just one payment. Here’s how to make the right choice:
Assess Your Coverage Needs
Begin by evaluating your financial obligations, such as home loans, children’s education, and household expenses. Select a sum assured that adequately covers these to secure your family’s future.
Select the Right Policy Tenure
Pick a tenure that aligns with your long-term goals. Consider the duration your dependents would require financial support and choose a policy term accordingly.
Compare Premiums and Coverage
Use comparison tools to evaluate various plans. Look for policies that offer a high sum assured in return for your one-time premium to ensure better value.
Check the Claim Settlement Ratio (CSR)
Choose insurers with a high CSR. This reflects their reliability and ensures your family faces fewer hassles during claim settlement.
Evaluate Additional Features
Look for riders like accidental death benefits, critical illness cover, or return of premium options. Choose features that match your needs and enhance your policy’s benefits.
Conclusion
To sum it up, single premium term insurance may prove to be a suitable option for those looking to secure their family’s financial future in a hassle-free and straightforward way. It may offer the policyholder the flexibility of making a one-time payment. With its help, one may ensure that their loved ones may be taken care of financially in case of their untimely demise.
FAQs
Can I choose the coverage amount in a single premium term plan?
Yes, you can choose the coverage amount in a single premium term insurance plan. You can choose an amount which would be optimal enough to cover the financial needs of your family. However, the coverage should fall within the minimum and maximum sum assured limit specified in the policy that you choose. For instance, say the policy offers a minimum sum assured of ₹1 lakh and a maximum of ₹50 lakhs then you can choose an amount between this range only.
Are there any tax benefits associated with single premium term plans?
Yes, single-premium term insurance plans offer the same tax benefits as regular or limited premium term insurance plans. The single premium paid for the plan will be allowed as a deductible amount under the provisions of Section 80C up to a limit of ₹1.5 lakhs1. However, the premium should fulfill the following conditions1 –
- If you buy the one-time premium term plan on or after 1st April 2012, the premium that you pay should be up to 10% of the sum assured. If it is higher, the excess would be taxed.
- If you buy the policy issued on or before 31st March 2012, the premium that you pay should be up to 20% of the sum assured. If it is higher, the excess would be taxed.
- If you buy the policy is taken on 1st April 2013 or after it and the insured suffers from any disease or disability specified under Section 80DDB or Section 80U, the premium should be up to 15% of the sum assured. Any excess premium would be taxed.
- Any gain from Single premium term policy with return of premium (ROP) option, issued on or after 1 April 2023 having annual aggregate premium of Rs. 5 lakhs or more will be taxable in the hands of recipient on maturity. Note that for such policy, death benefit continues to be tax free in the hands of recipient.
If the critical illness rider is taken, the premium paid for the rider would be tax-free under Section 80D1. The deduction limit is ₹25,000
If the policyholder is up to 59 years of age and ₹50,000 if the age is 60 years and above1.
The death benefit will be tax-free in the hands of the nominee or beneficiary2. In the case of the return of premium term plans, the refunded premium would also be tax-free under Section 10(10D) if the following conditions are fulfilled –
- The premium fulfills the conditions mentioned above for 80C deduction2
- The aggregate premium payable for all term plans is up to Rs.5 lakhs3.
Above deductions can be claimed only under old regime of Tax
What is single premium term insurance?
Single premium term insurance is a type of life insurance where the entire premium is paid in one lump sum at the time of purchase. This policy offers life cover for a fixed term, typically ranging from 10 to 30 years. It provides financial protection to your family without the need for recurring payments. Once paid, the policy remains active for the full term, ensuring uninterrupted coverage and eliminating the risk of lapses due to missed premiums.
Who can avail of single premium term insurance plans?
These plans are ideal for people with a lump sum amount available who want life cover without the hassle of periodic premium payments. Before issuing the policy, insurers usually assess the applicant’s age, health condition, financial profile etc among other fcators. It's suitable for salaried individuals, self-employed professionals, or retirees looking to secure their family’s future with a one-time investment.
What is the difference between a single premium and a regular premium?
The main difference lies in how premiums are paid. In a single premium plan, the entire premium is paid upfront at once, providing coverage for the entire policy term. In contrast, a regular premium plan requires the policyholder to pay premiums periodically—monthly, quarterly, half-yearly, or annually—throughout the policy duration. Single premium plans offer convenience and eliminate payment tracking, while regular premium plans promote financial discipline by spreading the cost over time.
How is a single premium calculated?
The single premium is calculated based on several factors: the policyholder’s age, sum assured, policy term, health condition etc . Insurers use actuarial methods and mortality tables to determine the present value of future liabilities. The healthier and younger the applicant, the lower the premium. Market conditions and inflation expectations also influence the amount. Some policies may add charges for riders or additional features, slightly increasing the final premium payable.
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