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Single Premium Term Insurance

A single premium term plan is a type of life insurance where the policyholder pays a one-time premium upfront to secure coverage for a specified term, offering financial protection to beneficiaries.

  • 4,295 Views | Updated on: May 08, 2024

Insurance plays a crucial role in financial planning, providing a safety net for individuals and their families in times of need. While term insurance is a popular choice for many, a unique variant, Single Premium Term Insurance, offers distinct advantages.

Key Takeaways

  • Single premium term insurance requires a one-time upfront payment for coverage.
  • The policyholder does not need to worry about premium payments for the duration of the policy.
  • It offers a lump-sum death benefit to beneficiaries if the insured passes away during the policy term.
  • It is a simple and convenient option for those seeking life insurance coverage.
  • Policyholders can enjoy lower long-term costs, immediate coverage, and flexible terms, among others, with this plan.
  • It empowers policyholders with convenience and peace of mind.
  • Documents like proof of identity, age, medical history, and income are necessary to opt for this plan.

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

What is a Single Premium Life Insurance Plan?

A single premium term insurance is a type of life insurance plan where the policyholder pays the entire premium amount upfront in a single lump-sum payment, as opposed to making regular premium payments over the policy’s duration. In return, the insurance company provides coverage for the insured individual for the entire policy term, which could range from several years to a lifetime, depending on the policy’s terms and conditions.

Benefits of Single Premium Term Insurance

Single premium term insurance policy offers several benefits that make it a smart choice for those looking for a simple and effective way to protect their loved ones financially.:

Lower Long-term Costs

One of the most significant benefits of one time term insurance plan is that it can be much less expensive in the long run than other types of policies. By paying a lump sum upfront, you can avoid paying ongoing premiums, which can add up to a significant amount of money over time. This can be especially beneficial for those who want to minimize their long-term costs or who have a lump sum of money available to put toward life insurance.

Immediate Coverage

Another advantage of single premium term insurance is that coverage begins immediately after you pay. This means your loved ones will be protected immediately without any waiting periods or delays. This can be especially important for those in poor health or with a high-risk occupation, as qualifying for other life insurance coverage can be more challenging.

Flexible Terms

Single premium term insurance policies typically offer flexible terms that can be customized to meet your specific needs. You can choose the length of the term, the amount of coverage, and other features to create a policy that works for you. This can be especially helpful for those who want to tailor their coverage to fit their unique situation, such as those who have specific financial obligations or dependents to provide for.

No Ongoing Commitment

One of the most significant benefits of single premium term insurance is that no ongoing commitment is required. Once you make your payment, you have coverage for the entire term. There are no ongoing premiums to worry about, and you can let the policy expire at the end of the term if you no longer need the coverage. This can be especially beneficial for those looking for a short-term solution or who cannot commit to ongoing premiums.

Hassle-free Payment

One of the primary benefits of single premium term insurance is the convenience it offers in terms of payment. With a single premium plan, also known as one time payment plan, policyholders make a one-time payment upfront, eliminating the need for recurring payments. This not only simplifies the insurance process but also ensures that the policyholder does not have to worry about missing premium deadlines or facing lapses in coverage. It provides peace of mind, knowing that the insurance is secured for the entire policy term with a single transaction.

Tax Benefit

Single premium term insurance offers attractive tax benefits, making it a lucrative option for tax-efficient financial planning. Under Section 80C of the Income Tax Act, policyholders can claim deductions on the premium amount paid for single premium term insurance, subject to certain limits. Additionally, the death benefit received by the nominees is tax-exempt under Section 10(10D) of the Income Tax Act, making it an efficient way to protect your family’s financial future while optimizing your tax liability.

Death Benefit

The core purpose of any life insurance plan is to provide financial protection to the insured’s beneficiaries in the event of their untimely demise. Single premium term insurance fulfills this objective by offering a death benefit to the nominees in case of the insured’s death during the policy term. This lump-sum payout can help cover various expenses, including daily living costs, outstanding debts, children’s education, and future financial needs, ensuring that your loved ones are financially secure even in your absence.

Why You Must Opt for a Single Premium Term Plan?

Single premium term insurance plan offers a multitude of benefits that underscore their importance in providing comprehensive protection and peace of mind to policyholders and their loved ones.

Convenience

One of the most significant advantages of a single premium term insurance policy is its convenience. You do not have to worry about making premium payments every month, quarter, or year. A single premium term insurance can be especially helpful for those with a high net worth and who can afford to pay a large sum upfront.

Savings

A single premium term insurance policy can help you save money in the long run. Since you are paying the premium upfront, you can avoid the interest and fees associated with paying premiums over time. Additionally, if you invest the money that you would have used to pay premiums in a high-yielding investment, you could potentially earn a higher return than the interest rate offered by the insurance policy.

Estate Planning

A single premium term insurance policy is an excellent option for estate planning. They provide an immediate death benefit, which can help your beneficiaries pay any estate taxes that may be owed upon your death. Additionally, since the policy is paid up, your beneficiaries will receive the full death benefit without any deductions or fees.

Peace of Mind

A single premium term insurance policy provides a guaranteed death benefit, meaning your beneficiaries will receive a lump sum payment upon your death. Knowing that your loved ones would be financially taken care of in the event of an unexpected incident might give you peace of mind.

When is the Right Time to Opt for Single Premium Term Insurance?

When it comes to securing your family’s financial future, timing plays a crucial role in making the right decisions. Single premium term insurance offers a unique approach to life insurance planning, characterized by a one-time premium payment. However, determining the optimal timing to opt for single premium term insurance requires careful consideration of various factors.

In Case of Fluctuating Income

For individuals with fluctuating income streams, such as freelancers, entrepreneurs, or commission-based professionals, single premium term insurance can be an ideal choice. Since it involves a one-time payment, it eliminates the need to manage regular premium payments, which may pose challenges during lean periods or when income is unpredictable.

Opting for single premium term insurance ensures continuous coverage without the risk of policy lapses due to financial constraints.

If You Have a Busy Schedule

Modern lifestyles often entail hectic schedules and busy routines, leaving individuals with limited time for managing financial matters. In such scenarios, single premium term insurance offers a convenient solution. With a one-time payment, policyholders can secure insurance coverage for the desired term without the hassle of remembering payment due dates or dealing with paperwork associated with regular premium payments. It streamlines the insurance process, allowing individuals to focus on other priorities.

If You Have a Lump Sum Amount to Invest

Individuals who come into a lump sum amount, such as an inheritance, bonus, or proceeds from a financial windfall, may find single premium term insurance an attractive option. Instead of letting the lump sum sit idle or investing it in assets with uncertain returns, allocating it towards a single premium term insurance plan can provide immediate financial protection for their loved ones. It offers a prudent way to utilize surplus funds while securing the family’s future.

If You Prefer One-time Financial Commitments

Some individuals prefer simplicity and certainty when it comes to financial commitments. Single premium term insurance aligns with this preference by offering a one-time payment option. Rather than committing to ongoing premium payments for an extended period, policyholders can make a single investment and enjoy uninterrupted insurance coverage for the chosen term. It appeals to those seeking clarity and ease in managing their financial obligations.

How to Calculate Term Insurance Single Premium?

While traditional term insurance plans require regular premium payments, single premium options offer the convenience of paying the entire premium upfront. If you are considering a single premium term insurance plan, understanding how to calculate the premium is essential.

Step 1: Determine the Sum Assured

The first step is calculating the sum assured of a single premium term insurance. The sum assured is the amount of money that the policyholder or their beneficiaries will receive in case of the occurrence of the insured event. The sum assured is usually determined based on the policyholder’s age, health, and other factors that impact their life expectancy.

Step 2: Consider the Policy Term

The next step is to consider the policy term and the duration for which the policy will remain in force. The policy term is usually based on the policyholder’s age, financial goals, and other factors impacting their insurance needs. A longer policy term will require a higher single premium, while a shorter one will require a lower single premium.

Step 3: Calculate the Premium Rate

The premium rate is the premium the policyholder must pay per unit of sum assured. The insurance company determines the premium rate based on various factors, such as the policyholder’s age, health, and lifestyle habits. The premium rate varies for insurance policies, such as term, whole life, and endowment.

Step 4: Use the Premium Calculation Formula

Once the sum assured, policy term and premium rate are determined, the single premium can be calculated using the premium calculation formula. The premium calculation formula varies depending on the type of insurance policy.

For instance, in the case of term insurance, the premium calculation formula is:

Single Premium = Sum Assured x Premium Rate x Policy Term

On the other hand, in the case of whole life insurance, the premium calculation formula is as follows:

Single Premium = Sum Assured x (1 + Premium Rate)^(Policy Term) / (1 + Discount Rate)^(Policy Term)

Step 5: Compare the Premiums

Once the single premium is calculated, comparing the premiums offered by different insurance companies is essential. The premium amount may vary depending on the insurer’s financial strength, underwriting policies, and other factors. Choosing an insurance policy that offers adequate coverage at a reasonable premium is recommended.

Documents Required to Apply for a Single Premium Term Plan

A 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 in 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 of a single premium term insurance is hassle-free and requires limited documentation. However, consider the documentation necessary for applying for a term plan single premium. This is because having the proper documents handy expedites the purchase process and 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 single premium since your medical history may significantly determine the premium and amount insured.

Proof of Address

The documents required for term insurance understand this head can be the same as identity proof: electricity, water, or other utility bills.

Proof of Income

You can submit salary slips for the last three months or 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 Form 26 AS.

Factors to Consider Before Buying a Single Premium Term Insurance Plan in India

The single premium term insurance plan has emerged as an attractive option for many individuals. This plan allows policyholders to pay the entire premium amount upfront, offering the convenience of a one-time payment. However, before purchasing a single premium term insurance plan in India, it is crucial to consider several factors to ensure it aligns with your financial goals and requirements.

Coverage Amount

The primary purpose of any insurance plan is to provide financial protection to your dependents. Before buying a single premium term insurance plan, assess your family’s financial needs, including daily expenses, outstanding loans, children’s education, and future goals. Choose a coverage amount that adequately addresses these needs and provides a comfortable financial cushion for your loved ones in your absence.

Premium Payment

Unlike regular term insurance plans that require annual or monthly premium payments, single premium term insurance plans involve a one-time payment. While this may seem convenient, it’s essential to evaluate your financial situation to ensure you can afford the lump sum payment without impacting your liquidity or other financial goals. Consider your cash flow, savings, and investment portfolio before committing to a single premium payment.

Policy Tenure

The tenure of the insurance policy plays a crucial role in determining the level of protection it offers. Assess your financial responsibilities and obligations to select an appropriate policy duration. Ideally, opt for a policy term that provides coverage until your dependents become financially independent or until you have paid off significant debts like home loans. A longer policy tenure ensures extended protection for your loved ones.

Claim Settlement Ratio and Reputation of the Insurer

Before finalizing a single premium term insurance plan, research the claim settlement ratio and reputation of the insurance company. The claim settlement ratio indicates the insurer’s efficiency in settling claims, providing insights into their reliability and trustworthiness. Choose an insurer with a high claim settlement ratio and a positive reputation in the market to ensure a hassle-free claims process for your beneficiaries.

Riders and Add-on Benefits

Evaluate the additional riders and benefits offered by the insurance provider to enhance your coverage. Common riders include critical illness cover, accidental death benefit, waiver of premium, and income benefit rider. Assess your specific needs and opt for riders that complement your primary insurance coverage, providing comprehensive protection against various contingencies.

Exclusions and Terms

Thoroughly review the policy document to understand the exclusions and terms associated with the single premium term insurance plan. Exclusions typically include death due to pre-existing illnesses, self-inflicted injuries, and participation in hazardous activities. Ensure you are aware of these exclusions to avoid any unpleasant surprises during the claims process.

Tax Benefits

Single premium term insurance plans offer tax benefits under Section 80C of the Income Tax Act, allowing policyholders to claim deductions on the premium amount paid. Additionally, the death benefit received by the nominee is tax-exempt under Section 10(10D). Consider leveraging these tax benefits to optimize your tax planning while securing your family’s financial future.

Final Thoughts

A single-premium term plan is a life insurance policy that requires a one-time premium payment for a fixed term. It provides a lump-sum benefit to the nominee in case of the policyholder’s untimely demise. Single premium term plans offer tax benefits to policyholders under Section 80C of the Income Tax Act, 1961. It is important to note that tax laws may vary occasionally, and policyholders should consult their tax advisors for specific guidance.

FAQs on Single Premium Term Insurance


1

What is a single premium term insurance plan?

A single premium term insurance plan is a type of life insurance where the policyholder pays the entire premium amount upfront in a single payment. In return, the insurance company provides coverage for a specified term, offering financial protection to the insured’s beneficiaries in case of death during the policy term.



2

Who is eligible to avail of single premium term insurance plans?

Individuals who meet the eligibility criteria set by the insurance company, typically including age restrictions and medical requirements, are eligible to avail of single premium term insurance plans. The eligibility criteria may vary between insurance providers.



3

What types of deaths are included in single premium term insurance plans?

Single premium term insurance plans typically cover all types of deaths, including natural causes, accidents, illnesses, and terminal illnesses, as long as they are not excluded explicitly in the policy document. However, certain exclusions, such as suicide within the first year of policy issuance, may apply.



4

What is the advantage of a single premium policy?

The main advantage of a single premium policy is the convenience of making a one-time payment, eliminating the need for regular premium payments. Additionally, it offers immediate coverage for the entire policy term, providing peace of mind to the policyholder and their beneficiaries.



5

How to terminate a single premium term insurance policy?

Single premium term insurance policies can be terminated by submitting a written request to the insurance company. Depending on the terms and conditions of the policy, the policyholder may receive a surrender value, which is a portion of the premium paid, subject to applicable charges and deductions.



6

Is it possible to choose the coverage amount in a single premium term plan?

Yes, policyholders can choose the coverage amount in a single premium term plan based on their financial needs and obligations. The coverage amount determines the sum assured payable to the beneficiaries in the event of the insured’s death during the policy term.



7

What are the tax benefits associated with single premium term plans?

Single premium term plans offer tax benefits under Section 80C of the Income Tax Act, allowing policyholders to claim deductions on the premium amount paid. Additionally, the death benefit received by the nominees is tax-exempt under Section 10(10D) of the Income Tax Act.



8

Reasons to opt for a single premium term insurance?

Some reasons to opt for a single premium term insurance plan include the convenience of a one-time payment, immediate coverage for the entire policy term, potential tax benefits, and flexibility in choosing the coverage amount and policy tenure.



9

How to calculate the premium for a single premium term plan?

The premium for a single premium term plan is calculated based on factors such as the insured’s age, health condition, coverage amount, policy tenure, and prevailing market conditions. Insurance companies use actuarial calculations to determine the premium amount.



10

Is a single premium policy tax-free?

The proceeds from a single premium policy, including the death benefit received by the nominees, are typically tax-free under Section 10(10D) of the Income Tax Act, subject to certain conditions. However, it’s advisable to consult a tax advisor for specific tax implications.



11

What is the difference between a single premium and a regular premium?

The main difference between single premium and regular premium term insurance lies in the payment structure. In a single premium plan, the policyholder pays the entire premium amount upfront in a single payment, while in a regular premium plan, the premium is paid at regular intervals, such as annually, semi-annually, or monthly, throughout the policy term.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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