Advantage of single-premium
A single-premium plan secures your family’s financial protection at one go, doing away with the obligation of annual payments. It would also suit the requirements of those with an unpredictable, seasonal or uneven income stream. Likewise, if you have earned a handsome bonus or have made a windfall gain from say sale of a property, you can consider direct your money to single-premium plans.
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.
This policy is suitable for people who travel regularly, who don’t want the hassle of remembering payment date or have lump sum amount to invest, don’t have steady cash flow to pay a premium every year or high income earner. However, you need to be wary of any change in your circumstances that can affect your insurance requirement.
Pitfalls of the policy
However, it is obvious that all the benefits mentioned earlier will accrue to you only if you can actually afford the single premium as it will be significantly higher than annual premiums. If the person chooses a single-premium product, and if the buyer dies during the term, his premium paid for the rest of the term goes waste. Hence, don’t choose the product just because you want to get rid of paying that premium every year. One should buy what suits one’s income style, maintaining investment discipline.
The tax benefit offered on the premium paid on the insurance policy is applicable under section 80C, provided the premium amount is at least 20% of the sum assured, in case policies issued before, April’ 1 2012 and current financial years onwards, tax benefits under section 80C are extended only to those life plans where the sum assured is at least 10 times the premium paid. Therefore, if your sole aim is exhausting the 80C limit, many single premium plans may not fit the bill.
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