"Single Premium Term Insurance Plan: One-Time Payment for Lifetime Security"
A Single-term plan includes payment of the premium in one lump sum mode at the inception of the policy. This plan is considered to be the Best Term Insurance Plan in India. It offers comprehensive coverage throughout the policy tenure, unlike other regular term plans where repeated premium payments have to be made.This plan suits individuals who have surplus funds & in cases where regular premium payments cannot be made.This plan covers the policyholder throughout the policy tenure, ensuring financial security of the family members.
How Does Single Premium Term Insurance Work?
Below are the steps on how single premium term insurance works:
- Application & Underwriting process
The policyholder issues an application for the policy, & the insurer will check the policyholder’s age, health, lifestyle, & other factors to evaluate eligibility & the amount of premium.
- Single Premium Payment
The policyholder is now required to make a lump sum payment towards the premium amount for the complete policy tenure.
- Coverage Period
In an event of the unfortunate demise of the policyholder, the death benefit would be received by the nominees of the insured.
- End of Policy Tenure
The policyholder will not receive any death benefit if he survives the policy tenure.
Let us now underst& the concept with the help of an example:
Mr. Sunil to ensure the financial stability of the family bought a single premium term insurance plan. He chose a sum assured of around 1 crore for a tenure of 20 years.
In the case of a single premium term plan, the premium rate he got was INR 4,00,000.
In case of an annual premium plan, a premium of INR 25,000 for 20 years comes out to INR 5,00,000.
Hence the savings amount comes out to INR 1,00,000.
Benefits &Features of Single Term Insurance Plan
Provided are the benefits & Features of Term Insurance with single premium payment:
- High Flexibility
This plan is quite flexible in terms of policy tenure, coverage amount, terms & conditions, critical riders, etc.
- Avoids Policy Lapse
A single miss in the policy tenure will lead to the policy lapse in case of regular premium payment option. On the other h&, there is no such problemwith missing premium payments as they were paid at the inception.
- Death Benefit
A death benefit would be received by the family members in case the policyholder dies during the policy tenure.
- Cost Effectiveness
The premium paid in case of single premium term plan is comparatively lower than that of regular premium plan as it is paid at once, making it affordable.
- Tax Advantages
The premium amount is eligible for a tax deduction of up to INR 1,50,000 per annum u/s 80C of the Income Tax Act, 1961. Along with this, the death benefit is also exempt from tax u/s 10(10D). This is subject to the premium amount equal to or less than 10% of the sum assured.
- Mental Peace
It provides mental peace as it reassures about the financial security of the family members in case of any unfortunate event.
Difference between Single Premium Payment & Annual Premium Payment
Provided are the differences between the Single Premium Payment & Annual Premium Payment:
| Basis of Difference |
Single Premium Payment |
Annual Premium Payment |
| Cost Over Time |
One-Time Lump Sum |
Distributed across multiple years |
| Frequency of Payment |
Paid at the inception |
Annual payment |
| Flexibility |
Less Flexible |
More Flexible |
| Surrender Value |
May be a small surrender value |
No surrender value |
| Total Cost |
Generally Lower |
Generally Higher |
| Initial Financial Outlay |
Higher |
Lower |
| Premium Amount |
A fixed amount is to be paid at inception |
It may change depending upon the situation |
| Taxation Benefits |
It allows a deduction of tax u/s 80C of the Income Tax Act, 1961, maximum up to INR 1,50,000. This is subject to a condition that the amount of sum assured must be at least 10 times the amount of premium paid. |
It allows a deduction of tax u/s 80C of the Income Tax Act, 1961, maximum up to INR 1,50,000. |
| Interest on premium |
Increased savings due to an advance premium payment |
No benefit as such |
| Missing payments implications |
No option |
In case of missed premium payment, the policy lapses. |
| Suitability |
Suits those who have lump sum funds available |
Suits those who find it comfortable to make payments in installments. |
Things to be considered while buying a Single Premium Term Insurance Plan:
- Coverage Amount:Evaluate the coverage amount required to secure the future of nominees that best suit your future financial obligations.
- Policy Tenure: Select the policy tenure depending on the financial objectives.
- Cost & Affordability: One should ensure that the amount of single premium payment is budget-friendly & does not affect their pockets.
- Flexible Coverage: Explore the options which offer flexible coverage & additional riders, if required.
- Riders: Look for available additional riders to enhance the features of the plan.
- Surrender Charges: Go through the applicable surrender charges in case of an early termination of the plan.
- Tax Implications: Know about the tax implications on the amount of premium paid & whether the policy is surrendered.
- Death Benefits: Evaluate the death benefit well, aligns with financial budgeting.
- Policy Benefits: Analyse the benefits & features of the policy, along with additional features, critical riders, etc.
- Flexible Premiums: Assess whether the fixed costs match the financial position well.
- Policy Terms & Conditions: Go through the policy document’s terms & conditions carefully, its inclusions, exclusions, etc.
Conclusion
A single premium term plan is the most hassle-free plan & ensures financial safety & security for your family members in your absence. It includes a single lump sum payment, which eliminates the problem of regular premium payments. Hence, this plan is considered to be the wisest choice for those who are looking for long-term security in a convenient way, offering financial security, comprehensive coverage & mental peace.
