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What is a Single Premium Term Plan and its Tax Benefit?

What is a Single Premium Term Plan and its Tax Benefit?
  • 12th Nov 2019 |
  • 13,053

A single premium term insurance policy is a significant investment you make to attain financial security at a later stage in life. It involves a specific amount known as a premium, which is paid for the contract. In return, the company pays a particular amount in case of death or at the time of maturity of the policy. It would help if you considered different options when it comes to the premium payment.

Life insurance plans offer a great deal of flexibility in terms of both premium payment and payout modes. However, out of the different modes of paying premiums offered by most insurance companies, single premium payment is one of the most sought-after options.

What is a Single Premium Life Insurance Policy?

When a policyholder wants to pay the entire premium in one go, they can opt for a single premium term plan. Apart from this, there are other types of premium payment modes like a limited pay insurance plan, where you pay the amount for a specific tenure like five years, seven years, or ten years, or a regular pay insurance plan, where you pay the premium at fixed intervals throughout the policy tenure.

Eligibility and Documents Required to Apply for a Single Premium Term Plan?

Single-premium term plan is the most basic type of coverage. These policies offer you and your family long-term financial security against unforeseen events of life. In addition, these plans significantly protect your loved ones during uncertainties by providing financial support in your absence at pocket-friendly premiums.

The buying process is hassle-free and requires limited documentation. However, it is noteworthy that you should pay utmost attention to the documentation necessary for applying for a term plan. This is because having the proper documents handy does not only expedite the purchase process but also increases your chances of getting the policy accepted and approved.

Following are the documents required for the single premium term insurance plan.

  • Proof of identity
  • Any official document or ID proof, such as a PAN card, Aadhaar card, voter’s ID card with photograph, passport, etc., are considered valid documents for identity proof.

  • Proof of Age
  • Your age affects various aspects of the insurance plan, including the premium price, your eligibility, and occasionally even the length. You can present your birth, marriage, or other official documents as proof of age.

  • Proof of Medical History
  • You must share your previous medical records with the insurer before buying a term plan since your medical history may play a significant role in determining the premium and amount insured.

  • Proof of Address
  • The documents required for term insurance understand this head can be the same as identity proof, that is, the electricity, water, or other utility bills.

  • Proof of Income
  • You can submit salary slips for the last three months or the bank statements for the previous six months. Additionally, you can share your latest two years’ income tax return. Additionally, salaried individuals can also share the latest Form 16. However, self-employed individuals can share their ITR filing details or the Form 26 AS.

    It is best to verify that you match the eligibility requirements for a term insurance plan before applying. Submitting these documents is critical as proper documentation and details help insurers:

  • Assures the insurer that you are a residing Indian
  • Updates them on your medical history and current health condition
  • Helps with a stress-free process of buying, renewing, and settling claims
  • Empowers you to avail yourself of the numerous policy benefits

Tax Benefits of Single Premium Life Insurance Policy?

Premium payment in the case of a life insurance plan is eligible for a tax deduction under sections of the Income Tax Act, 1961. However, one of the most talked-about tax exemptions available for the policyholder is through Section 80C deduction, under which they get a maximum limit of ₹1.5 lakh for a single premium policy.

Moreover, the taxability of a single premium term insurance policy on maturity remains exempted under Section 10 (10D) of the Act. Therefore, single premium term insurance qualifies for the same benefits. However, not every policy will offer the same benefit as a regular life insurance plan. Hence, financial advisors always recommend choosing the plan prudently.

Conditions for exemption on maturity payout under Section 10 (10D)

In the case of life insurance plans issued after April 1, 2012, the exemption from tax on single premium term insurance is valid only when the premium is less than 10% of the total sum assured. It applies to a single premium term plan as well. In a one-time premium term plan, the proceeds from maturity will remain tax-free if the minimum sum assured in the policy is ten times the single premium amount paid. Tax Deduction at Source (TDS) of 1% will also be applicable here. Additionally, for a death claim, the proceeds will be tax-free.

What is offered as the sum assured?

In a one-time premium term plan, the company will determine the minimum and the maximum sum assured limit. The minimum amount insured is 1.25 times the single premium amount, and the maximum amount is about ten times.

Benefits under Section 80C for Single Premium Life Insurance Plan

The premium in online life insurance is valid for a deduction in Section 80C. The maximum amount is ₹1.5 lakh, and the policy should be issued after April 1, 2012. When the premium amount is more than 10% of the sum assured, the tax exemption will only be available for up to 10%.

Tax Implications for the Surrender of Policy

Surrendering a life insurance policy is all about renouncing it before the deadline and receiving any benefits still valid as of the surrender date. For example, surrendering the policy would mean ending a 30-year plan only after the first ten years and taking advantage of any benefits before the actual tenure is completed. The value you receive after surrendering the plan is referred to as the surrender value.

The type of insurance plan you own determines the tax regulations for surrendering it. However, the surrender value is tax-free only when the following requirements are met.

  • The surrender value is tax-free for traditional life insurance plans like an endowment plan when you consistently make the premium payments for the first two years.
  • If you have owned a single premium term insurance policy for at least two years following the date of purchase, you can avail yourself of a tax-free surrender value.
  • If you own a ULIP, the surrender value is tax-free only if you surrender the policy five years after the purchase date.

In addition to the factors above, the date on which your insurance policy was issued impacts whether or not the surrender value is taxable. In the event that you purchase a pension plan and decide to surrender it, the surrender value you receive from the insurer is tax-free because there is no tax provision for the same. Additionally, any tax exemptions you may have used to pay your premiums are overturned, and you are then expected to pay taxes on those exemptions.

Therefore, if you’re considering cancelling your single premium term insurance policy, you must be aware of the financial complications. In addition, there is a minimum stay period of two years for the policy. If surrendered before this duration, the tax deduction allowed previously will be considered income, and the policyholder has to pay the applicable taxes. Therefore, to avoid the risk of paying taxes, you should also check whether the surrender value is exempt from taxes.

Understanding what a single premium term plan is and its tax benefits are crucial to determining your future goals and then making a decision. Therefore, when buying an online single premium term insurance policy, you need to plan as per the present scenario and keep the tenure and sum assured in mind.

Kotak e-Term Plan


  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492


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