Definition & Comparison between Single Premium Policies of Companies

Definition & Comparison between Single Premium Policies of Companies

Life insurance policies allow you flexible premium payment modes. There are regular premium plans, limited premium plans and single premium insurance plans. Under regular premium policies, you pay premiums throughout the term of the plan. Under limited premium plans, premiums are paid for a limited period which is lower than the total plan duration. Single premium policies, on the other hand, involve payment of a lump sum premium when you buy the plan. You pay the premium at once and enjoy coverage throughout the chosen term of the policy.

Many individuals who have a lump sum amount of money to invest choose single premium life insurance plans. The benefits of these plans include the following –

• Since the premium is payable at once you don’t have to remember the premium payment due date during the plan tenure
• The policy remains in force throughout the term since there is no possibility of a lapse from non-payment of premiums
• Single premium traditional life insurance policies acquire a surrender value from the second policy year itself
• The policy is ideal if you cannot guarantee payment of premiums over the policy tenure
• Almost all types of life insurance plans allow a single premium payment mode. You can, therefore, choose any type of life insurance plan for your coverage needs and pay a single premium for the policy

Who can buy single premium life insurance policies?

There are no special eligibility parameters to buy single premium policies. You just have to be within the minimum and maximum entry age bracket specified under the policy to be eligible to buy a single premium life insurance plan.

Why should one buy single premium life insurance policy?

You should opt for a single premium life insurance policy if you want life insurance coverage but do not wish to keep paying premium for a long period of time. This type of policy is best suited for people who have short lived careers like players, actors, etc. or who get a large amount of money by inheritance.

Single premium policies do not have regular premium commitment and even businessmen sometimes prefer to opt for the same.

How does the single premium plan work?

The working of a single premium life insurance policy is quite simple. Here’s how the plan works –

• You choose the type of life insurance plan that you want to buy
• You can then  compare the available plans in that category
• Choose a plan based on your coverage requirements and check whether the plan offers the single premium mode of payment
• You can then choose the coverage level, policy tenure and pay the required single premium
• The insurance company underwrites your insurance proposal and issues the policy
• You don’t have to pay any more premiums in the future and the policy continues for the specified tenure
• If you die during the term of the policy, the promised death benefit would be paid and the policy would be terminated
• In case the term comes to an end, the policy matures and you get the maturity benefit

Tax implications of single premium policies in India:

Before buying a single premium life insurance plan you should understand the tax implications of the premiums paid and the benefits received. The tax treatment of single premium policies, therefore, is as follows –

• The single premium paid would be allowed as a deduction under Section 80C only if the sum assured is 10 times the amount of the single premium paid.Let us understand this with an example.
  1. Single Premium amount is INR 10,000
  2. Sum Assured needs to be >INR 1 lakh,
     e. 10 times the premium amount, i.e. 10 * 10,000 = 1 lakh
  3. If the Sum Assured >= INR 1 lakh, the single premium paid towards that plan is tax free U/S 80C
  4. However, if the Sum Assured < INR 1 lakh say INR 80,000, i.e. < 10 times the premium, then only 10% of the sum assured would be eligible for tax exemption
  5. Thus, for Sum Assured of INR 80,000 where single premium amount is INR 10,000,
     an amount of 10% of the Sum Assured, i.e. 10% of 80,000 = INR 8,000 would be eligible tax deduction U/S 80C and not the remaining INR 2,000
• Even in the case of maturity benefit, if the sum assured is not at least 10 times the single premium paid, the entire maturity benefit would be taxable in your hands.So, in our previous example,
  1. Single Premium amount is INR 10,000
  2. Sum Assured needs to be >INR 1 lakh,
     e. 10 times the premium amount, i.e. 10 * 10,000 = 1 lakh
  3. If the Sum Assured >= INR 1 lakh, the maturity benefit in that plan is tax free U/S 10(10)D
  4. However, if the Sum Assured < INR 1 lakh say INR 80,000, i.e. < 10 times the premium, then the entire amount received on maturity would be taxed as per the current income tax slab rates.
• In case of the death benefit, however, the benefit received would be completely tax-free irrespective of whether the sum assured was 10 times the single premium paid or not.
• Single premium policies should be held for at least two full policy years before they are surrendered to claim tax benefits on the surrender value. If the single premium policy is surrendered after two policy years, the surrender value would be tax-free in your hands. If not, the surrender value would be fully taxable at your income tax slab rates.

An overview: Best single premium policy in India

Here is a comparative list of some of the best single premium policies in India –

Overview of the best single premium life insurance plans in India:

Here’s a brief look into the features and benefits of the best single premium life insurance plans listed above –

LIC’s Jeevan Shanti

This is a pension plan which can be taken as an immediate annuity plan or a deferred annuity plan. The plan’s features are as follows –

• There are nine options to avail annuity payments
• The annuity amount is promised at the time of buying the policy and it is payable throughout your life
• If deferred annuity option is selected, guaranteed additions are also paid
• The loan can be availed under the policy after the policy has completed one year

Pradhan Mantri Vaya Vandana Yojana

This is a pension plan which has been introduced by the Government for senior citizen’s investment and pension needs. The plan offers pensions during the policy tenure. The features of the plan are as follows –

• If the insured dies during the policy tenure, the single premium paid is refunded back
• On maturity, the single premium paid and pension instalments are paid
• Pension is payable during the policy tenure and can be availed in monthly, quarterly, half-yearly or annual instalments.

AEGON iMaximize Single Premium Policy 

This is a unit linked plan which gives you attractive returns with just one investment. The plan has the following features –

• There are six investment funds to choose from
• Top-ups are allowed to increase your investment any time that you want
• Partial withdrawals are allowed after the completion of the first five years

ICICI Pru Immediate Annuity Plan

Under this plan, you get lifelong income in the form of annuities after you pay the single premium. Other features of the plan include the following –

• There are 12 annuity pay-out options
• The annuity instalments can be deferred in which case the annuity rates would increase
• If you have invested in the National Pension  Scheme (NPS), you would get a discount on the purchase price

HDFC Click 2 Invest

This is a unit linked insurance plan which also allows single premium payment mode other than the regular and limited premium payment modes. The features of the plan are as follows –

• There are eight investment funds to choose from
• The plan can be easily bought online by filling up a Short Medical Questionnaire (SMQ)

LIC’s Single Premium Endowment Plan 

The plan creates a guaranteed corpus for you and promises the payment of a death benefit or maturity benefit. The features and benefits of the plan include the following –

• The plan participates in the insurer’s profits and earns simple reversionary bonuses throughout the policy tenure.
• A final additional bonus might also be paid on death or maturity of the plan
• Premium discounts of up to 30% of the sum assured are allowed if you choose the higher sum assured levels of INR 1 lakh and above.

LIC’s New Bima Bachat

This is a with-profits money back policy which provides liquidity during the policy tenure. The plan’s benefits are as follows –

• Loyalty additions are promised after the first five policy years
• 15% of the sum assured is paid as money back benefit from the end of the 3rd policy year and every three years thereafter
• The single premium paid is refunded back on the maturity of the policy along with loyalty additions
• The premium discount is available at high sum assured levels

These are some of the best single premium life insurance plans available in the market. Turtlemint offers life insurance plans, you can select the plans based on our requirement buy visiting https://www.turtlemint.com/life-insurance

You need to choose a plan as per your coverage needs and enjoy the plan’s benefits. The premium is payable only once while you can enjoy coverage for the selected plan duration. Single premium policies are, therefore, a convenient way to avail insurance.

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Courtesy Article: Sidharth Hampanavar / September 26, 2019