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Insurance premium paying frequency is one of the vital factors considered by many while deciding to avail a policy. When it comes to life insurance payment options, an individual has two choices - a single premium life insurance or a regular premium. Before you can figure out which payment structure is better for you, you need to understand what they are and how they work.
When an individual opts for a single premium life insurance policy, they have to pay the premium as a lump sum amount once before the policy starts. That is all they have to worry about. Usually, a single premium life insurance policy provides a minimum of 110% return, while the maximum is capped at around ten times the initial amount. It is essential to remember this figure varies from policy to policy.
In a regular premium policy, the individual pays for the insurance coverage at regular time intervals for the entire policy tenure. The intervals might vary from a monthly basis to an annual basis. Most people opt for a regular premium policy, as they can automate the payments through various apps.
Comparison between a single premium life insurance and regular premium life insurance
Below we have done a comparative analysis of both types of insurance. It will be easy for you to decide between the two after you know all about the policies.
Usually, a single premium life insurance policy is considered more convenient than a regular premium policy. It is because, in the former, you have to make a single payment, and the company takes care of the rest. While with the regular policy, you will have to remember to send in your payments. Since the introduction of automated payment systems, regular premium policies have become an attractive choice.
Section 80C of the Indian Income Tax Act provides a tax benefit of up to ₹1,50,000 on the annual premium paid for a life insurance policy. Section 80C does not differentiate between two types of policy; hence the limit is the same for both. Therefore, whenever you pay for your life insurance policy in a single payment, you can only avail of the benefit for that year. But if you choose to make the regular payment, you can avail of the benefit of Section 80C till the term of your insurance policy.
Financial planning also plays a vital role while deciding between the insurance premium plans. If you choose the single premium insurance policy, you will have to allocate a significantly substantial sum towards the insurance policy. The payment might upset your budget for that particular year. With the regular payment plan, the total premium outflow is spread across multiple terms, and you can easily incorporate it into your budget.
You should know insurance is essentially a long term investment instrument. Therefore, if you have money to spare, you can opt for a single premium insurance policy. The premium will be higher. But you will not have to worry about regular payments till the maturity of the policy. With the regular premium insurance policy scheme, you will have to pay regularly till the maturity of the insurance policy. But the premium amount will be comparatively lower.
Both types of life insurance premium policies are highly customisable. But when you have to customise the single premium insurance policy, you will have to pay a significantly larger lump sum. With the regular premium payment plan, the amount might not put pressure on your wallet since it is to be paid over 15-20 years. The regular premium policy will also allow you to make changes to your preferred riders*, while it might be difficult with the single premium policy.
Since these are long term instruments, once the money has been paid, it gets locked in. When an individual decides to pay a single larger premium, then they are exposing themselves to extreme market conditions. The pandemic has made the market a bit more volatile, and the economy is also a bit more unpredictable. But when you choose to pay the regular instalment, rupee cost averaging comes into play. Since the larger sum is spread across a period, you stay safe from the volatility.
If you are a busy person with a lot of payments to take care of, then the single premium insurance policy might be more suitable for you. The single payment plan is also suitable for people who have a seasonal job or business. This way, you will not have to worry about the policy lapsing in case of missed payment dates due to the cyclic nature of your job. If the individual is a salaried person, then they should go for the regular instalment plan. Since they have money coming in every month, they can set some aside for the policy and utilise the rest for their utilities and other expenses.
The term insurance plans from Tata AIA Life offer both single and regular premium payment options, along with a host of other features. This makes the insurance policies very flexible and can be availed easily. You can choose between single premium life insurance and regular premium life insurance. Both the policies promise to deliver and safeguard your family’s future.
Regular premium insurance plans are usually considered for a longer period, such as 15-20 years, while single premium insurance plans usually have a shorter period. Both the plans have their pros and cons. If you are a salaried individual with a family to take care of, then the regular premium insurance plan might be the right choice for you. If you just want to park your money someplace safe while also getting decent returns, then you should opt for the single premium insurance plan.
Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This document is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
# Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you
* Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch