Insurance providers offer monetary compensations against losses covered under their insurance plans. In return, you need to pay a specified sum to the insurer, called the premium.
You may need to pay the premiums regularly at specified intervals over a definite period. Insurance plans with such periodic payments are called regular premium plans.
Or you can also pay the entire sum at once with the single premium option.
Both options have advantages and drawbacks. If you are unsure about the suitability of single premium vs. regular premium plans for your needs, you should weigh out the following factors.
Affordability – How do you plan to pay?
Often the deciding factor in buying insurance is whether the premium fits your budget. Hence, the choice between single premium vs. regular premium plans depends on your resources.
Do you have a large sum lying idle in a low-interest paying savings account? Or you might have a considerable sum to invest. You can use it to buy life cover through an upfront lump sum payment. Such payment modes may also fetch attractive discounts, reducing your total premium outgo.
With regular premiums, the total amount you pay over the time can be more than the lump sum single premium. However, each premium instalment is smaller than the sum needed for a single premium plan. Hence, if you are a salaried employee with a recurrent income, a regular payment mode might better suit your finances. Hence, the choice is subjective.
Convenience – Can you arrange for the sum?
If you are a self-employed individual or freelancer, your income might vary. Hence, you might not be sure about your capacity to pay repeated premiums on time. In that case, when you get the funds, you can secure your family's financial future with single premium insurance.
However, if the one-time lump sum payment compels you to dig into your savings, a regular payment plan might be convenient.
Another consideration could be the hassle of remembering due dates. If you miss paying your premium on time, your policy may not remain active. Paying the entire premium at once helps you avoid such issues.
Risks – How the capital market impacts your investment?
Returns from insurance plans that combine life cover with capital market investments depend on market performances. With such plans, a one-time investment exposes you to market volatilities.
But regular payments can benefit from the averaging costs of shares under different market conditions. When markets are slow, share prices fall. Thus, the number of shares you buy for the same premium increases, raising your total holding.
And when the market recovers, the higher amount of shares you hold increases your investment's worth. Hence, between single premium vs. regular premium modes, the latter shields you from the ups and downs in the capital market.
Tax* Benefits – Can you reduce your taxable income?
Life Insurance premiums make you eligible for tax* rebates under Section 80C of the Income Tax Act, 1961. Every financial year, you can claim deductions on up to ₹ 1.5 lakh paid as premiums. However, with single premium insurance, you can redeem this benefit only once – the year you buy the policy.
In contrast, with a regular-payment policy, you can enjoy tax* savings throughout the policy tenure.
The payouts from both insurance types are, however, tax-exempt* under Section 10(10D).
Extended benefits – Can you extend your life cover?
With regular payment policies, you can increase your financial cover with add-on riders. For a nominal increase in your premium, such riders provide extra payouts over and above your base coverage. For example:
- Accidental death benefit rider - provides additional payouts in fatal accidents.
- Critical illness rider – pays a lump sum amount on the diagnosis of health conditions covered under the rider.
However, such benefits may not be available with single premium policies.
Also, regular premium policies often offer premium waivers for permanent disabilities. The insurer pays all future premiums. Your life cover remains intact until your policy tenure ends. But with single premium policies, you have already paid the price in full. Hence, in such unforeseen events, you cannot get any extra benefits.
The choice between single premium vs. regular premium payment options depends on your budget, convenience, tax planning, and the benefits you need from your policy. In any case, Life Insurance protects your loved ones against financial insecurities due to unwanted events. Hence, whichever payment mode you choose, the bottom line is to stay insured.
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* Tax benefits are subject to conditions under Sections 80C, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on the above.