What is a Single Premium Policy?
Single Premium term insurance operates as a life insurance variant where you, the policyholder, make a single lump-sum premium. The insurance company, in exchange, guarantees the coverage for the insured person across the full policy term, which could span several years or extend to a lifetime, contingent upon the policy’s stipulations and contractual arrangements.
In simple terms, a single premium policy essentially translates to one-time payment term insurance.
Benefits of Single Premium Term Insurance
The single premium term insurance has a number of advantages, which makes it a smart option to consider when one wants to find an affordable and effective method of insuring their loved ones financially:
Lower Long-Term Costs
Among the principal benefits of the one-time term insurance plan, or single premium term insurance benefits, is the fact that it can prove to be far less expensive in the long run than other forms of plans. You can pay a lump sum initially and start saving on the repeatable payments in the nature of a premium, which can save you a big sum of money in the long run.
This may prove to be helpful, particularly for those wishing to reduce their expenses in the long term or those people wishing to spend a lump sum of money as an investment towards whole life insurance.
Flexible Terms
Single premium term insurance policies are normally flexible and can be tailored to suit your needs. You have the option to select the term duration, the amount of policy, and other options so as to come up with a policy that fits you.
This is extremely useful for a variety of individuals, especially beneficial for those with specific financial obligations or dependents requiring provision.
Immediate Coverage
The other benefit of single premium term insurance is that the coverage begins instantly after payment. Your loved ones receive protection without waiting periods or procedural delays, which is a critical feature for individuals in compromised health or high-risk occupations, where qualifying for alternative life insurance coverage presents greater challenges.
No Ongoing Commitment
The reason why single premium term insurance is one of the most appealing options is the total absence of continued financial obligations. You can pay a single upfront payment, and then you are completely covered throughout the policy period. This particularly suits individuals who are looking for financial transparency or have unreliable income. You get your life cover with continued efforts, attaining genuine peace of mind.
Hassle-Free Payment
Another major advantage of a one-time premium policy is that it is quite convenient to pay. It involves a one-time payment by policyholders immediately after the enrollment, and no further payments are required.
This makes the process of getting insurance quite easy, and the policyholder does not have to worry about paying the premium on time or lapse of coverage.
Tax Benefit
Single premium term insurance delivers attractive tax advantages. Under Section 80C of the Income Tax Act, policyholders claim deductions on premium amounts paid for single premium term life insurance, subject to specified limits.
Moreover, the death benefit that the nominees will get is tax-exempt under Section 10(10D) of the Income Tax Act; hence, it is the best method for safeguarding your family’s future financial planning and reducing tax burdens.
Death Benefit
The core purpose of any life insurance is to offer financial protection to the beneficiary against the untimely death of the insured. The single premium term insurance also offers a death benefit to the nominees in case of death of the insured within the policy term.
This amount of money paid as a lump sum can be used to cover several of your family’s expenses, such as covering living costs, clearing debts, educating your kids, and fulfilling other needs in the future, which means that even when you are not there, your loved ones will be in a better financial position.
Difference between Single Premium, Regular Premium, and Limited Premium Payment
Purchasing a term insurance plan grants flexibility. You can choose from different premium payment modes. Each option caters to distinct financial preferences and capabilities. Understanding the distinction between Single, Regular, and Limited premium payments is crucial for selecting the plan aligning with your long-term financial strategy.
- Single Premium Payment: You pay the entire premium of the policy in a single, lump-sum payment upon purchase. It eliminated the need for future payments, and the coverage continues for the full policy term.
- Regular Premium Payment: You pay the premium at regular intervals, such as monthly, quarterly, semi-annually, or annually.
- Limited Premium Payment: You pay premiums over a shorter, pre-defined period, such as 5, 10 or 15 years, yet the life cover continues for the entire policy period.
Here is a comparative look at the three premium payment options:
| Feature |
Single Premium |
Regular Premium |
Limited Premium |
|---|
| Payment Frequency |
One-time, upfront lump-sum payment. |
Periodically throughout the entire policy term. |
Periodically for a shorter, limited period. |
| Premium Amount |
High, as the entire amount is paid at once. |
Lower, as it is spread out over the full tenure. |
Moderate, higher than Regular but lower than Single. |
| Convenience |
Highly convenient; no need to track future payments. |
Requires tracking to ensure timely payments. |
Convenient, with a shorter payment commitment. |
| Risk of Policy Lapse |
Nil, as the premium is fully paid upfront. |
High, if a premium payment is missed. |
Lower than Regular, as the payment term is shorter. |
| Tax Benefits |
Tax benefits under Section 80C are available only for the year in which the payment is made. |
Tax benefits can be claimed every year for the entire policy term. |
Tax benefits can be claimed for every year during the limited premium payment term. |
Single Premium vs Regular Term Insurance – Which One is Right for You?
One of the key decisions you have to make while buying term insurance for self-employed is how you will pay the premium: in a lump sum or in scheduled monthly payments. Both the options provide the same level of coverage, but it is up to you to make the choice based on your economic position, lifestyle, and goals. Here’s a side-by-side comparison to help you decide:
| Factor |
Single Premium Term Insurance |
Regular Premium Term Insurance |
|---|
| Payment Mode |
One-time lump sum payment at policy purchase |
Periodic payments (monthly, quarterly, annually) |
| Overall Cost |
Lower in the long run due to upfront payment discounts |
Can be higher due to extended payment duration |
| Convenience |
Highly convenient – no recurring payments to remember |
Requires consistent payments and monitoring |
| Ideal For |
People with surplus funds or irregular income (e.g., freelancers, business owners) |
Individuals with regular income (e.g., salaried professionals) |
| Impact on Liquidity |
High – ties up a large amount of money upfront |
Low – smaller periodic payments maintain liquidity |
| Risk of Lapse |
None – fully paid at the start |
Higher – missing a payment could result in lapse |
| Tax Benefits |
Eligible for deductions under Section 80C and tax-free benefits under 10(10D) |
Same tax benefits under Sections 80C and 10(10D) |
How is Single Premium Term Insurance Calculated?
The calculation of a single premium for a term insurance policy is a complex process undertaken by the insurer’s actuarial team. Their goal involves determining a single, discounted lump-sum amount sufficient to cover the policyholder’s death risk for the entire policy duration.
This represents the present value of total risk coverage the insurer provides. Several key factors undergo assessment to determine this amount, as they directly influence the risk level the insurer assumes. You can use a term plan calculator to get the estimated premium amount.
These factors include the age of an individual, gender, medical history, lifestyle habits, such as smoking or alcohol drinking, the amount of sum assured chosen, and the tenure of the policy. A young and healthy person preferring to have a shorter tenure will be paying a much lower amount of single premium compared to someone with pre-existing health conditions who requires a long-term and high-value cover.
Final Thoughts
Single premium term plan is a life insurance policy that demands a one-time premium payment for the entire tenure of the policy. It offers a lump-sum payment to the nominee when the policyholder dies during the policy period. Furthermore, single premium term plans are tax-exempt policies under Section 80C of the Income Tax Act, 1961. It also needs to be noted that income tax returns can at times differ, and policy owners ought to seek advice regarding the same with their tax advisors. Furthermore, to maximize your benefits, you should consider the insurer’s claim settlement ratio, solvency ratio, and customer reviews to get a better understanding of their offerings.
FAQs on Single Premium Term Insurance
1
What is a single premium term insurance plan?
Single premium term insurance is one of the types of life insurance in which the policyholder pays their entire premium in a single payment. In return, the insurance company guarantees coverage for a stipulated duration of time, financially protecting the beneficiaries of the insured in the event of untimely demise.
2
Who is eligible to avail of single premium term insurance plans?
Single premium term insurance schemes are available to individuals who qualify on the parameters that are established by the insurance company. These usually involve age limits and health conditions. The eligibility criteria can differ among insurance companies.
3
What types of deaths are included in single premium term insurance plans?
Single premium term insurance plans in India 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 primary benefit of the best single premium policy is the convenience of making a single payment, without any further payments to continue the policy. It also provides instant coverage for the whole policy period, which gives peace of mind to the policy holder and as well as 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. As per the terms and conditions of the policy, the policyholder can get a surrender value, which is part of the premium amount paid, which is applicable to charges and deductions.
6
Is it possible to choose the coverage amount in a single premium term plan?
Yes, policyholders can select the amount of coverage, such as ₹50 lakh term insurance or ₹1 crore term insurance, depending on their financial requirements and needs. This coverage amount will be given to the beneficiaries on the demise of the insured during the policy term.
7
What are the tax benefits associated with single premium term plans?
One-time term insurance plans have tax advantages under section 80C of the Income Tax Act, in which policyholders are entitled to deductions on the premium amount paid. Also, the death benefit received by the nominees is also tax-exempt under Section 10(10D) of the Income Tax Act.
8
Reasons to opt for a single premium term insurance?
Convenience of having one single payment, immediate coverage for the entire term of the policy, tax deductions, and the ability to customize the coverage amount and the policy term are some of the reasons why one should consider having a single premium term insurance plan.
9
How to calculate the premium for a single premium term plan?
A premium amount for a single premium term policy is determined according to the age and health of the insured, the value of the cover, the period of the policy, and the current market conditions. Insurers use the actuarial computations in order to determine the premium.
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, consulting a tax advisor for specific tax implications is advisable.
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.
