A Toss-up between Single or Regular Premium Life Insurance

When it comes to actually taking up a life insurance policy, the most important aspect is the frequency at which premiums have to be paid. There are usually two options where the policyholder can either pay a single premium or regular premium. A single premium policy requires paying the entire premium in one-go while a regular premium policy is where one needs to pay on a monthly, quarterly, bi-annual, or annual basis.

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We are rated^~

7.7 Crore

Registered Consumer

50

Insurance Partners

4.2 Crore

Policies Sold

Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

The question is which option is the better choice? Here are the factors to consider before settling on which route to take –

Cost

The most important criterion is the cost to be incurred. When it comes to a single premium plan, the policy requires a one-time payment of the entire premium of the policy. Since this amount is paid up front, there is a misconception that it works out cheaper in the long run, though this is not the case. Let us consider this example to understand why this is so –

If a 30-year-old pays a regular annual premium of Rs. 10,000 for 15 years for Rs. 2, 00,000 term cover, whereas he end up paying Rs. 1, 50,000 in total by the end of the term. However, if he opts for a single premium policy for the same term cover, then he would have to pay only Rs. 1, 10,000 up front. This indicates that he has made a savings of Rs. 40,000 on the life insurance policy but this is not actually the case if one considers the time value of money. What this means is that if one has to factor in an inflation rate of 6% per annum, after 15 years, the single premium that costs Rs. 1, 10,000 now will actually cost Rs. 2, 63,000. Thus, one has to make the necessary calculations in terms of cost effectiveness, before settling upon the premium paying frequency.

Sum Assured

Single premium policies usually offer less sum assured than regular premium policies. This is because the insurer has a guarantee of continuous cash flows in the case of regular premiums, which enables them to take more risks.

Value for money

Regular premium policies pack in more value for money. Assuming that the policyholder meets an untimely death before the policy term ends, the nominee needn’t continue paying premiums once the sum assured is received. However in a single premium policy, the policyholder would have paid for the entire term at the outset, so if they die during the term, they would have unnecessarily paid for future premiums.

Risks

When you opt for single premium, you run the risk of exposing yourself to market volatility over time. This is because insurance is generally a long-term investment. However, If you pay regular premiums, then you benefit from the ‘rupee cost averaging’, which basically means that the cost of your investments will be averaged out in different investment cycles, thereby protecting you from market fluctuations.

Affordability

Single premium policies require a larger amount be paid up front, as compared to regular premium policies. This works better for individuals who have higher amounts of liquid cash available, but it can be a strain for salaried people in middle-income groups.

Convenience

Paying off a single premium in one go is certainly more convenient, as there are no risks of the policy lapsing due to late or irregular payments. However, one can opt for this model only if they have the requisite funds available to make a lump sum investment as a single premium policy demands.

Tax Benefits

Both single premiums and regular premiums policies provide tax benefits. However, in the case of a single premium, you can make a claim and avail the tax benefits only once, whereas you can avail tax benefit on regular premium every year till the end of the tenure of the policy.

In Conclusion

You should consider the above parameters while deciding whether to opt for a single or regular premium life insurance plan. Take into account your earnings, convenience, the cost factor, and consult an insurance advisor if need be.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).