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Tax benefit: Is your single premium life insurance policy eligible for tax benefits?

A single premium term plan is a type of life insurance policy that requires the policyholder to pay a lump sum premium at the time of purchase. Read ahead to know all about it.

  • Aug 19, 2022

A single premium term plan is an excellent option for individuals who want to secure their family’s financial future while also availing of tax benefits.

Key takeaways

  • When a policyholder wants to pay the entire premium in one go, they can opt for a single premium term plan.
  • One of the biggest advantages of a single premium life insurance policy is that it offers convenience.
  • Single premium term insurance policies typically offer flexible terms that can be customized to meet your specific needs.

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.

Why You Must Opt for a Single Premium Life Insurance Policy?

A single-premium life insurance policy is a type of policy that requires you to pay a lump sum premium upfront in exchange for a death benefit that is paid out to your beneficiaries upon your death. This type of policy is also known as a “paid-up” policy since there are no future premium payments required.

Here are some reasons why you must opt-in for a single premium life insurance policy:


One of the biggest advantages of a single premium life insurance policy is that it offers convenience. You do not have to worry about making premium payments every month, quarter, or year. This can be especially helpful for those who have a high net worth and can afford to pay a large sum upfront.


A single premium life 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

Single premium life insurance policies are 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.

Guaranteed death benefit

A single premium life insurance policy provides a guaranteed death benefit, which means that 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.

Tax benefits

A single premium life insurance policy can offer significant tax benefits. The death benefit paid out to your beneficiaries is typically tax-free, and the investment growth within the policy is tax-deferred. This means that you do not have to pay taxes on the investment earnings until you withdraw them.

Benefits of Single Premium Term Insurance

There are numerous options available when it comes to life insurance. One option that may be especially appealing to some individuals is single premium term insurance. This type of insurance policy offers several benefits that can make it a smart choice for those who are looking for a simple and effective way to protect their loved ones financially. Now, let us take a closer look at some of the benefits of single premium term insurance:

Lower long-term costs

One of the most significant benefits of single premium term insurance 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 make your payment. This means that your loved ones will be protected right away without any waiting periods or delays. This can be especially important for those who are in poor health or who have a high-risk occupation, as it can be more challenging to qualify for other types of life insurance coverage.

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

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

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 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 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 not only expedites 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 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.

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:

How is a Single Premium Calculated?

A single premium is a lump-sum amount paid by an individual towards an insurance policy, which provides coverage for a specified period. Unlike regular premiums, single premiums are paid once at the start of the policy term. Calculating the single premium is an essential aspect of purchasing an insurance policy, as it determines the amount that needs to be paid upfront. In this section, we will discuss the steps involved in the single premium calculator.

Step 1: Determine the sum assured

The first step in calculating the single premium is to determine the sum assured. 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, which is the duration for which the policy will remain in force. The policy term is usually decided based on the policyholder’s age, financial goals, and other factors that impact their insurance needs. A longer policy term will require a higher single premium, while a shorter policy term will require a lower single premium.

Step 3: Calculate the premium rate

The premium rate is the amount of premium that the policyholder needs to pay per unit of sum assured. The premium rate is determined by the insurance company based on various factors, such as the policyholder’s age, health, and lifestyle habits. The premium rate varies for different types of insurance policies, such as term insurance, whole life insurance, and endowment policies.

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, it is essential to compare the premiums offered by different insurance companies. The premium amount may vary depending on the insurer’s financial strength, underwriting policies, and other factors. It is recommended to choose an insurance policy that offers adequate coverage at a reasonable premium.

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 the event of the policyholder’s untimely demise. Single premium term plans offer tax benefits to policyholders under Section 80C of the Income Tax Act, 1961. The premiums paid towards the policy are deductible from the policyholder’s taxable income up to a limit of ₹1.5 lakhs. The death benefit paid to the nominee is also tax-free under Section 10(10D) of the Income Tax Act, 1961.

It is important to note that tax laws may vary from time to time, and policyholders should consult their tax advisors for specific guidance.

Kotak e-Term

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Ref. No. KLI/22-23/E-BB/2435


- A Consumer Education Initiative series by Kotak Life

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