Single Premium and Regular Premium – Knowing which is better

Premiums are an important aspect of life insurance policy. It is the amount you pay to enjoy the benefits of the policy at a certain interval. Read on to know more about the difference between single premium and regular premium.

If you have decided to buy a life insurance policy, one of the first things you must decide is the frequency of premium payment. In other words, you must decide whether you want to buy a single premium life insurance or a regular premium insurance and pay at periodic intervals like monthly, quarterly or half-yearly. So, how do you decide this important factor? Well, just compare, which premium offers more benefits.

Cost

While buying a life insurance policy, most people look for a policy that has an affordable premium. It is the general belief that a single premium whole life insurance is much cheaper than paying regular premium. To evaluate this, let us consider the below example.

Let us assume that you buy an insurance policy with a sum assured for Rs 2,00,000 and you pay regular premium of Rs 10,000 per annum for 15 years. Thus, you would pay a total of Rs 1,50,000 at the end of the tenure. But, if you pay a single premium, you pay only Rs 1,10,000. This means that you get a savings of Rs 40, 000 and so you may think, a single premium, costs lesser than the regular premium.

However, in the above example, the inflation factor is not considered at all. Considering the inflation rate is 6%, the value of your single premium of Rs 1,10,000 will be Rs 2,63,000 at the end of the tenure. This means that you will be paying more than the policy amount in terms of value of the money.

Convenience

If you think, paying regular premiums is not convenient for you, you can opt for single life insurance premium. This will help you avoid the policy lapse and prevent you from losing the benefits of the policy. Also, if you are a business owner, you may not have a regular cash flow and you can opt for paying a single premium whenever you get a lump sum amount.

Risks and Returns

Life insurance is essentially a long-term product; you buy an insurance policy for 10 years or more. This means that if you have purchased a market-linked insurance policy, the returns will vary based on the market condition. In such a scenario, opting for a single premium payment will leave you exposed to high risk. However, if you opt for regular life insurance premium payment, you may get the benefit of averaging of the cost of your investment through different market conditions. Also, historically, the regular premium policies have delivered higher returns as compared to the single premium policies.

Tax Benefits

No matter, if you opt for single premium payment or a regular premium life insurance payment, you can avail of tax benefit on your insurance premium amount under Section 80C up to Rs 1.5 lakh per annum. However, you must know that you can avail of the tax benefit only once under a single premium policy, whereas, if you opt for a regular premium payment, the tax benefit is applicable throughout the insurance term.

So, in a nutshell, the regular premium policies offer better benefits in terms of tax-savings, affordability and exposure to risks. If you are a salaried employee, opting for a regular premium policy would be a better choice. You may still consider paying a single premium and park your money if you have surplus cash that is lying idle. But, make sure that you consider your long-term financial plan before taking your decision.

DISCLAIMER

The contents of this document are meant merely for information purposes. The information contained herein is subject to updation, completion, revision, verification and amendment and the same may change materially. The information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person‘s nationality, residence or otherwise) be contrary to law or regulation or would subject lClCl Bank or its affiliates to any licensing or registration requirements. This document is not an offer, invitation or solicitation of any kind to buy or sell any security and is not intended to create any rights or obligations. Nothing in this document is intended to constitute legal, tax, securities or investment advice, or opinion regarding the appropriateness of any investment, or a solicitation for any product or service. Please obtain professional legal, tax and other investment advice before making any investment. Any investment decisions that may be made by you shall be at your sole discretion, independent analysis and at your own evaluation of the risks involved. The use of any information set out in this document is entirely at the recipient's own risk. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith by lClCl Bank and from sources deemed reliable. There can be no assurance that such projections will prove to be accurate. lClCl Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss or damage incurred by anyone in reliance on anything set out in this document. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith and sources considered reliable by lClCl Bank. In preparing this document we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Past performance cannot be a guide to future performance. 'lClCl ' and the 'I-man' logo are the trademarks and property of lCICl Bank. Misuse of any intellectual property, or any other content displayed herein is strictly prohibited.