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Single Premium Term Insurance: Meaning, Benefits & Types

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Single Premium Term Insurance
September 03, 2024

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In the realm of life insurance, individuals looking to provide financial protection to their dear and near ones, consider term plans a convenient one. Term insurance offers you full life coverage for a particular period, ensuring the policyholder's family is safe and secured during any unforeseen circumstances. Thus, insurance plays a vital role in financial planning. Term insurance can be a unique choice for many policyholders but a unique variant, Single Premium Term Insurance comes with distinct advantages. 

Like other different types of insurance policies, term life insurance also offers flexibility in the payment of premiums. Out of the various payment modes provided by insurance companies, single premium term insurance is preferred among the policyholders, considering the policy’s terms and conditions.  It also offers tax benefits under Section 80C of the Income Tax Act, of 19611. Tax laws however might vary accordingly and thus policyholders need to consult their respective tax advisors for guidance and support.

What is single premium term insurance?

Single premium term insurance is a life insurance plan that requires paying the total premium in one go and keeping the policy in operation till maturity. The policy, like regular term insurance, offers death benefits to the policyholder’s family in case he/she dies within the policy term but offers tax benefits subject to certain limitations. Single premium term insurance is usually a short-term policy that is designed to save families  from risks for short period of term, for example 5 years or 10 year and offers a life cover to those who don’t want  to enter into a long-term  premium payment schedule, seeking temporary measures instead.

How Does the Single Premium Policy Work?

Under the Single Premium Term Plan, the lump sum premium amount is determined considering the specific category of policy you are purchasing, the insured sum, your age, the tenure of the policy, and other factors. Thus, when you apply for coverage, a single premium policy allows you to pay the lump sum premium amount in one go. After payment, the company evaluates the risk and issues the chosen plan. This plan then operates as per the term chosen. Alongside, considering the benefit structure, a single premium policy lets you experience survival benefits, death benefits, or maturity benefits.

Let us consider an example. Suppose, you have purchased a 10-year term insurance policy for an assured sum of Rs. 40 Lakhs. The insurance company has charged you Rs. 12 Lakhs. Being a single premium policyholder, you need to pay the entire amount at one go for the issuance of the policy. You can experience the benefits of coverage of Rs. 40 Lakhs and will get the amount only in case of death during the chosen tenure.

What Are the Benefits of Single Premium Term Insurance?

Following are the advantages offered by single premium term insurance.

  • Hassle-free payment:

    • This policy requires paying the premium only for one time and thus saves the policyholder from remembering the payment schedule and from the hassles of missing the dates.

  • Higher flexibility:

    • Single premium term insurances are more flexible compared to their traditional counterparts. You can choose the length of the term, coverage amount, and other features to create a policy that is best suited to your requirements as per the terms and condition of the product that offers by the insurers.

  • Death benefit:

    • The policyholder’s family receives a lump sum death benefit if the life assured dies within the policy term.

  • Tax benefit:

    • Like the traditional variants, single premium term insurance too offers tax benefits. The premium payment is entitled to tax deduction up to Rs 1.5 lakh per annum under section 80C of the Income Tax Act, 1961 while the death benefit is tax-free under section 10 (10D)1. However, the tax benefit is available for a premium amount less than or equal to 10% of the sum assured.

  • Affordability:

    • The premium being payable only once, the amount is lower than the total premiums paid in regular term insurance plans. Thus, a lesser pocket pinch makes it more affordable.

  • Mental peace:

    • By paying a lump sum premium at one go, the policyholder can protect his family from financial struggles if the untoward happens.

  • Utilising windfall gain:

    • Since single premium term insurance needs a lump sum payment, it’s a sound choice for those looking to utilise a big profit from a business, an unexpected monetary gain or a reward.

Things to Consider While Purchasing Single Premium Term Plans

  • If you are planning to opt for a single premium term insurance, here’s a checklist of things that need to be noted.
  • The exemption from tax is variable here and you can claim for no tax deductions if the premium is higher than 10% of the sum assured.
  • A regular premium schedule helps in forming a financial discipline for the policyholder, a facility which is not there in the case of a single premium payment.
  • The single premium insurance doesn’t cater to the rupee cost averaging that cushions your corpus from market risk.
  • It’s important to choose a plan that is cost-effective and suits your needs as the best fit.

How is Single Premium Term Insurance Calculated?

Like the options available in conventional term insurance plans, the premium amount in single premium term insurance is also calculated based on the policyholder’s age, health conditions, medical history, lifestyle and smoking habits. Premiums will be higher for those who have indications of greater health risk in future.

Conclusion

To conclude, single-premium term insurance is a viable option for people capable of investing a lump sum amount to secure life insurance coverage for a specific time period. However, before purchasing a policy, it is necessary to understand its pros and cons. A single premium term insurance is a one-time investment for a longer tenure usually and you cannot refund the premium amount once paid. Thus, make sure to review your financial situation before investing in the plan and also determine if your chosen plan is the best option to meet your financial needs in the long term.

FAQs on Single Premium Policy

1. What is single premium term insurance?

A single premium term insurance is a kind of life insurance policy that lets the policyholder pay the lump sum premium amount at once, rather than at regular intervals over time. The tenure of this policy usually ranges between 10 and 30 years.

2. Who can avail of single premium term insurance plans?

Anyone who falls in the age bracket of 18-65 years is eligible to buy single premium term insurance plans.

3. What types of deaths are covered under a single premium term insurance plan?

Natural deaths and deaths caused by accidents or critical illnesses are covered by these plans.

4. How can one cancel the single premium term insurance policy?

There are two ways to do it. One is to simply avoid paying the premium. The other is to inform the insurance company.

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

The main distinguishing factor between a single premium and a regular premium is its payment structure. In a single premium, the policyholder pays the premium amount in one go while in a regular premium plan, the premium amount is paid monthly, annually, quarterly and semi-annually throughout the tenure.

6. What is the net single premium term insurance?

The net single premium term insurance is the required premium amount a policyholder must pay at once to ensure enough money is there for paying further claims made on the policy. No additional expenses are included in this plan to charge the policyholder.

7. How is a single premium calculated?

The single premium amount is calculated considering the age of the policyholder, coverage amount, health conditions, tenure of policy, and prevailing market conditions. However, for determining the premium amount, insurance companies use actuarial calculations.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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