Insurance Planning - Single Premium or Regular Premium?

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Once you have decided to buy a life insurance plan, the premium paying frequency is an important aspect you should consider. It is important to decide whether you would like to pay the entire premium amount at one go as a single premium or at regular intervals for a particular period of time through regular premium payments. Here are some aspects you should look at before deciding whether your insurance policy should go single or not.

Consider the single premium option if you have an irregular income or bulk money receipts like bonuses and would not have a problem in putting away a lump sum amount for a long period of time. However, do note that you will be able to pay the premium only when you have sufficient funds in hand. Regular premiums, on the other hand, are suitable for those with a regular income and/or who cannot afford to block a big sum at one go. Such individuals would have the capacity to pay premiums regularly for many years ahead. You can choose to pay the regular premium annually, halfyearly, quarterly or on a monthly basis; as well as decide on paying for the full term of the policy or a limited period during the policy term.

Single premium plans being a one-time payment take away the fear of forgetting to pay future renewal premiums and the resultant lapse of policy. Thus, these are suitable for those seeking the convenience of having a suitable insurance through-out, without the 'hassle' of paying any more premiums. On the other hand, although regular premiums need to be paid consistently to continue the policy, it also offers you the option to discontinue the policy, if needed. This is the case, especially in a term cover policy, where the amount of premiums paid may not be too large. Consequently, the loss on discontinuance may not be much since premium rates for term cover plans have come down in the present market. In the current scenario, regular premium Ulips too do not penalise you for a break in premium payments, but transfer your investment into a discontinuance fund to ensure you stay invested.

Single premium plans in the market usually carry larger minimum premium sizes than a regular premium for the same plan. So, the single premium payable can be a substantially large amount for a reasonable cover. But in a regular premium case, the amount of each premium will be small and will not pinch your pocket. Also, when pricing the premium/charges of a plan, insurance companies usually cost-in for any uncertainties of the future in the calculation. The main difference between a single premium and a regular premium plan can be in lapse, expenses and investment return. Since single premium will not have to factor for discontinuation of premium, renewal commissions & expenses with respect to renewal activity, the overall premium payable may be lower.

Insurance plans are basically long-term products. If the investor stays invested for at least 10 years, the returns would be larger. However, in a single premium plan, since the entire sum is invested at one go, it may expose you to market volatility. But you can overcome this by opting for the fund switch facility in Ulip products.

On the other hand, a regular premium product will cover the risk of the volatilities in the market, since a more frequent payment of premium can save you against such market fluctuations.

In a single premium product, you can access your money only through a policy loan or by surrendering the policy. However, the applicable loan interest and surrender fee/charges can be onerous, but the quantum of loan in a single premium can be bigger. Most companies do not offer riders on single premium options, whereas a range of riders are available on regular premium such as critical illness, accidental death, waiver of premium etc.

TAX BENEFIT

Single premium plans are eligible for deduction under Section 80C and Section 10(10D) that makes withdrawals tax free (subject to life cover being five times the premium). However the deduction under Section 80C can be availed only once. On the other hand, you can avail tax benefit in a regular premium plan throughout the premium paying term.

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