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Posted On: 22-Mar-2010
Should you get a Single Premium or Regular Premium insurance policy?
When you get an insurance policy, you have the option of choosing how to pay the premium. You can either make a lump sum payment up front, i.e., a single premium payment. Or, you can choose to make regular payments over the life of the plan. But do you know which payment plan is best for you and the criteria you should use to select from between these two payment alternatives? Here we explain to you the some general features of the two options for Term Plans.
| Premium type | Single premium | Regular premium | |
| Suitable for | For individuals whose source of income is lumpy or irregular and want peace of mind of having insurance. Such individuals might only be able to pay the premium when they have sufficient funds. | For individuals who have recurring and regular source of income, but do not want to commit a large sum of money at inception of plan. Rather, such individuals have the capacity to pay an annual premium for years to come. | |
| Frequency of premium | Single premium payable at inception of the plan. | Regular premiums payable either monthly, quarterly, half yearly or yearly, across the term of the plan. | |
| Flexibility | Riders | Most companies do not offer critical illness and other riders under single premium option. | Range of riders are available such as critical illness, accidental death, waiver of premium, hospital cash benefit etc. |
| Availability | Not all companies offer single premium term plan so range of insurers is restricted. | Large number of companies to choose from as all insurers offer regular premium term plan. | |
| Some companies such as Max New York Life and HDFC Standard Life restrict the maximum term to 20 and 15 years respectively. | Regular premium plans are available for a term as high as 40 years and most companies offer 30 years. | ||
| Tax benefits | Deduction under section 80C can be availed only once. | Deduction under section 80C can be availed over the premium paying term. | |
| Death benefit payout | Sum assured is payable. | Sum assured is payable. | |
The example below demonstrates the difference in the two payment options for a 30-year old male and female seeking a life cover or Rs 25 lakhs. For this illustration we have used the pricing terms from the ING Term Life Plan, but other insurance companies will also offer similar features and pricing. While the sum assured is the same, the total amount of premium paid is different. In the single premium option, if the insured has the capacity to pay the lump sum amount, then this option might be worth considering. In the regular premium option, the insured might not have access to a lump sum amount to pay the premium, but is comfortable spreading their premium payments across the term of the policy.
| Gender | Single premium Rs 25 lakhs coverage | Regular premium Rs 25 lakhs coverage | |
| 30-year old individual, for a 30-year Term plan | Female | Rs 1,19,681 in upfront lump sum | Rs 7,584 per annum for 30 years Total premium payable Rs 2,27,520 |
| Male | Rs 1,40,826 in upfront lump sum | Rs 8,738 per annum for 30 years Total premium payable is Rs 2,62,140 |
So, if you are deciding between a single or regular premium option, do consider your ongoing capacity to pay and the kind of flexibility that you want from your insurance plan.
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Comments
|
SHore said : 15/03/2011 |
This is a junk suggestion. One should go ONLY for yearly plan and then put 1,40,000 in fixed deposite. The fix deposite with 7.5% intrest will earn the yearly premium. The advantage is that you secure your principal and can discontinue policy as and when needed |
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Simon Jacob said : 13/04/2010 |
You could have also shown a calculation in terms of which proves economical. My calculations show that even the cheapest single premium term plans tend to be more expensive than regular ones. |