Keshav works in Noida for a multinational corporation. The 30-year-old recently decided to purchase a life insurance policy. He expects to get his yearly bonus from his company shortly, which has caused him to consider whether he should purchase a single premium term insurance or a regular one.
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Sat 21 Dec. 2024
Many people consider the frequency with which they will have to pay their term insurance premiums when determining whether to purchase a policy. When it comes to term insurance payment options, you might encounter two main options: single premium term insurance or regular premium term insurance. Before you can determine which payment, mode is best for you, you must first grasp what they are and how they function.
What is Single Premium Life Insurance?
A single premium policy is a one-time payment insurance policy in which you make a single lump-sum payment to get life insurance coverage for the duration of the policy. It eliminates the need to make periodic payments and keep track of the plan on a regular basis. You only need to purchase a single-premium term plan and then forget about it.
What is a Regular Premium Policy?
A regular premium policy requires you to pay for insurance coverage at regular intervals for the duration of the policy. The time periods could range from monthly to annual. Many individuals opt for the regular premium option because it helps make the policy affordable for them.
Comparing Single Premium Life Insurance and Regular Premium Life Insurance
Now that we understand in basic terms what the two premium payment options mean let’s dive into a comparative assessment of both types of life insurance policies in the context of some key parameters.
Convenience
A single-premium term insurance policy is typically considered more convenient than a regular one. This arises from the fact that, with the former, a single payment suffices, and you don’t need to make any further payments for the rest of the term. Conversely, with the regular policy, you must remember to make their payments on time. Although, since the introduction of automated payment systems, regular premium policies have emerged as an attractive preference.
Tax Advantages
Section 80C of the Indian Income Tax Act extends a tax benefit of up to ₹1,50,000 for the annual premium of a life insurance policy. Notably, Section 80C doesn’t distinguish between the two policy types, resulting in an identical cap for both. Consequently, opting for a single payment in a term insurance policy only grants benefits for that specific year. In contrast, selecting the regular payment route enables tax benefits under Section 80C throughout the insurance policy’s term.
Affordability
Financial planning is also important when picking between insurance premium options. If you choose the single premium term insurance policy, you must set aside a significant amount of money for the insurance coverage. The payment may cause problems with your budget for that year. The premium outflow is spread across numerous terms with the regular payment plan, making it easy to include into your budget. Make sure you determine the premiums for both modes using a term insurance calculator online.
Premium Amount
The premiums are spread out over a long period for regular premium term plans. Policyholders are also given the option of paying premiums for a specific number of years, called limited premium payment. The premiums for this mode are also spread out over the first few years for a specific sum assured. Either way, the premiums will be lower than the one-time premium payment.
If you consider the total premiums, then single-premium policies appear to be less expensive than regular premium term insurance.
Let’s say you must pay Rs 10,000 in annual premiums for 15 years in exchange for a sum assured of Rs 20,00,000. By the end of the policy’s term, you have paid Rs 1,50,000. However, with a single premium term insurance, you will only have to pay Rs 1,10,000 for the same tenure and sum assured. By paying a single premium, you save Rs 40,000.
However, when inflation is taken into account, the picture changes. In 15 years, Rs 110,000 will be worth Rs 2,63,000 if inflation is taken to be 6%. In terms of the time value of money, this means that you will pay more for the same sum assured. This factor must be considered when deciding on a policy.
Customizability
Both forms of term insurance policies are highly customizable. However, if you need to tailor the single premium insurance coverage, you must pay a higher sum initially. The same sum may not strain your pocket with the regular premium payment option because it is spread over a longer period. The regular premium policy may also let you modify your preferred riders down the line, while the single premium policy may not let you change them easily.
It Depends on your Situation!
If you are a busy individual with many bills to pay, a single premium insurance coverage may be ideal for you. People with seasonal employment or business can also benefit from the single payment plan. As a result, you won’t have to worry about the policy lapse in the event of missed payment dates due to the cyclical nature of your job. If you are employed, you should choose the regular payment plan. You can easily set some money aside for the coverage and use the rest for other essential expenditures because you have money coming in every month.
Concluding Thoughts
Regular premium term insurance plans are typically considered for a longer period whereas single premium insurance plans are typically considered for a shorter time. Both plans have advantages and disadvantages. If you are a salaried worker with a family to support, a regular premium insurance plan may be your best option.
