The Buyt Desk
Single premium and regular premium insurance provide financial compensation to the nominee for the losses covered by the insurance plan within the insurance term.
The insurance buyer has to pay a specified sum to the insurer called the premium so that they can provide a sum assured to the nominee in case of the demise of the insured.
What is Single Premium insurance?
A single premium insurance policy is a type of life insurance plan in which the insured pays a single lump sum premium instead of multiple monthly, quarterly or yearly premiums. For this type of insurance, the maximum and minimum sum assured is decided when buying the insurance and it is usually between 1.1 to 10 times the premium paid in a lump sum. Only 10% of the sum assured is considered for tax deduction under Section 80C of the income tax act. Only when the minimum sum assured is 10 times or more than the single premium paid, the maturity proceeds are tax-free. When the insured surrenders the policy within 2 years of paying a premium, the tax deductions allowed earlier under Section 80C will be considered as income of the insured.
What is Regular Premium insurance?
When the insured buys an insurance policy and has to pay premiums on a regular basis at specified intervals (monthly, quarterly, half-yearly or yearly) for a specific term such periodic premium payment insurance policy is known as Regular Premium insurance.
How to decide if Single premium insurance or regular premium insurance is good for you?
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Your affordability, how do you plan to pay the premiums? – When you buy insurance the first factor to consider is your budget. Based on your earnings you can decide if you want to pay a single lump sum premium or multiple small premiums. If you have a good amount of money to invest or have that amount parked in some low-return product, then you can use this money to buy single premium insurance. By doing so you may be offered some special discounts including a discount on the premium. If you are a salaried employee with a regular income, then paying regular small premiums would be beneficial as compared to a single lump sum premium. Paying a premium in instalments will not burden you financially.
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As per your convenience, how much money can you arrange? – When you know your income is not regular unlike salaried as you are self-employed or a freelancer, you should think twice before going for regular premium insurance. Because you may not be able to pay a few premiums in future, as you may not be able to arrange for it. So such individuals should go for single premium insurance to secure their family’s future. But if you are taking out your savings to buy single premium insurance then you are definitely doing it wrong and a regular payment plan might be more suitable.
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Discipline, how financially disciplined you are? – Regular premium insurance is for financially disciplined individuals. One should remember due dates and pay premiums on time to avoid policy lapse. The single premium is tailor-made for individuals who are not disciplined so that they can pay and forget.
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Risk appetite, how the market impacts your investment? – There are insurance plans that are a combination of life cover and capital market investments. Returns of such insurance depend on the market performance. A single premium of such an insurance plan exposes individuals to market volatility. On the other hand, regular premium insurance will have an advantage from the averaging costs of shares under different market conditions. When you buy shares when markets are slow, you will have a large holding at the same premium as share prices have fallen. So that, when the market is growing your investment worth, is much more. For this kind of insurance combo, regular premium modes will protect investors from the ups and downs in the capital market.
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Tax Benefits, by reducing taxable income. – Under Section 80C of the Income Tax Act, 1961, life insurance premiums are eligible for tax rebates. Up to Rs 1.5 lakh, the premium paid can be claimed for deductions. With regular premium insurance, you can be benefited from this deduction every year whereas with single premium insurance you can claim deductions only the year you paid the premium.
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Extended life cover benefits – Add-on riders are allowed only on regular premium insurance. With the rider, your cover will be extended at a nominal increase in the premium. Two such riders are the Accidental death benefit rider which gives additional cover in case of fatal accidents and the Critical illness rider which pays the insured a lump sum amount on the diagnosis of critical health conditions. These riders are not available for single premium policies.
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Premium waiver benefit – Regular premium insurance provides a premium waiver in case of permanent disabilities of the insured while the life cover is intact for the policy term. Single premium insurance will not have such benefits as the premium is already paid.
Summing up
Based on your budget, financial plan, convenience, financial goals, tax planning and the benefits you seek from your insurance policy you can decide between single premium and regular premium insurance. Choose any but always stay insured for the financial security of your family and dependents.
