Single-premium payment option demands a lump sum amount of payment all at once. Someone with a fluctuating income can opt for the single-premium option. Salaried individuals should opt for regular premium policies. “Paying the premium amount at one go for a salaried individual will mean dipping into his/her savings,” says Rakesh Goyal, director, Probus Insurance Broker. He adds: “Opting for a particular premium frequency depends on product suitability, policy benefits, policyholder’s requirements, earning capacity, and commitment.” Opting for single premium also works for people who are forgetful by nature. It will help them avoid any lapse in policy and consequently lose out on policy benefits.
In the case of single-premium ULIPs, policyholders can also switch between different funds without being charged separately. “Policyholders can choose to invest the entire premium in a low-risk fund and systematically move it to a high-risk fund. This enables an individual to tide over market volatility,” says Saisrinivas Dhulipala, appointed actuary, Bajaj Allianz Life Insurance. However, experts say, single-premium policies offer lesser sum assured, compared to regular premium ones. “This is because the insurer can take a higher risk in case of regular premium plans on account of continuous cash flows coming in,” adds Goyal.
Nonetheless, the prices between the two types of payment options vary quite a bit. Ajay Singh, a 30-year-old salaried man (non-smoker) opts for a single-premium term plan. For a sum assured of Rs 10 million and a policy term 30 years, he pays a one-time premium of Rs 137,860. If Singh opts for the regular premium option with the same tenure and sum assured, he will pay a premium of Rs 8,235 yearly, and the total premium he will end up paying is Rs 247,050, which is almost 44 per cent more, compared to the single-premium policy.
As for tax savings, premiums paid for both types of insurance policies are eligible for deduction under Section 80C, up to a maximum limit of Rs 150,000. However, since the Section includes many other instruments such as employee provident fund, public provident fund and others, it is unlikely the amount paid for a single-premium policy will get the entire benefit. In such circumstances, regular plans score. “The benefit of regular insurance policies over single insurance policies is that the taxpayer can claim deduction with respect to the premium paid in each year of payment,” says Naveen Wadhwa, deputy general manager, Taxmann.