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Single Premium Insurance Plans: The Complete Guide

A savings insurance plan is a primary objective for many individuals in India, especially after the pandemic, which left many people stranded without financial support. An insurance plan with the savings benefit will provide a life cover for the entire policy term and guarantees1 a financial benefit at maturity. Insurers have introduced varied, flexible features to make the investment in the savings policy simple and effective. The single premium life insurance policy is a distinctive feature targeting many insurance policy seekers. Let us understand what it means, how it works, and so on!
 

What Is Single Premium Life Insurance?


A single premium life insurance is a life insurance plan wherein you will pay the entire premium cost for the policy during the inception in one go. It is a one-time premium life insurance policy. Therefore, you need not plan for making regular premium payments throughout the policy term.
 

How Does The Single Premium Plan Work?
 

 

In a single premium policy, you will pay for the life insurance savings plan during inception and ensure the benefits through the policy term. For example, suppose you are purchasing a long-term savings plan with a single premium for a life cover and guaranteed1 return at maturity for a policy term of 10 years. In that case, you will make the premium payment when you buy the savings plan.
 

The life cover will provide the sum assured to your family in the event of your unexpected demise at any time during the policy term. And the guaranteed1 returns are provided when the plan matures after 10 years. Although the premium payment is made during inception, it does not affect the life cover or the maturity benefit in anyways of the single premium policy.
 

Benefits of Single Premium Life Insurance Policy In India


The one-time premium policy provides benefits that prove to be a financial advantage for certain people in India.
 

  • Making the premium payment one time relieves the financial stress of paying it through the policy term.

  • It negates the possibility of your savings policy lapsing due to non-payment of your regular premiums. 

  • Although the premium payment is made during inception, the benefits from the savings plan are applicable through the policy term and at maturity.

  • Policyholders need not be conscious about paying the premium regularly through the policy tenure or for a limited term.
     
Tax* On Single Premium Life Insurance


The premium paid and the payouts received from a life insurance policy qualify for a tax* deduction and exemption benefit under Section 80C and Section 10(10D) of the Income Tax Act, 1961. However, it is subject to certain terms and conditions.
 

  • For claiming the tax* deduction benefit under Section 80C, the premium for life insurance policies should not exceed 10% of the sum assured if purchased after 1st April 2012 and 20% of the sum assured for policies purchased before 1st April 2012. Section 80C reduces the tax* liability for investments made in certain financial products upto ₹1,50,000 by reducing it from the taxable* income.

  • For claiming the tax* exemption benefit under Section 10(10D), where the payouts from life insurance plans are fully tax* exempt, the premium for life insurance policies should not exceed 10% of the sum assured if purchased after 1st April 2012 and 20% of the sum assured for policies purchased before 1st April 2012.

  • A TDS of 5% is applicable on the proceeds of the insurance plan if it exceeds ₹1,00,000 and is applicable for maturity proceeds after 1st September 2019. It was 1% earlier, since 1st October 2014. If the amount is less than ₹1,00,000, there will be no TDS payments. However, based on the tax* provisions, it might be fully taxable*.
     

Therefore, if you plan to target single premium life insurance tax* benefits, you need to analyse the sum assured and the premium payment for the applicability.
 

Who Should Purchase the Single Premium Insurance Plan?


The one-time insurance policy is suitable for people with a lump sum and for people who do not have a steady flow of income.
 

People with a lump sum can be businessmen or individuals nearing retirement and will have their hard-earned retirement corpus in hand.
 

It is also advisable for people who do not have an assured income, face irregularities and want to secure their family in the long term.
 

Factors to Consider While Purchasing a Life Insurance Plan


Before purchasing life insurance savings plans, you must consider certain factors for making well-informed decisions.
 

  • There is more probability that the single premium life insurance cost will be more than 10% of the sum assured, reducing the possibility of the tax* deduction and exemption benefit.

  • When the death benefit in the case of single premium and regular premium insurance is the same, the cost tends to be more for a single premium insurance plan if you, as the policyholder, meet with an unexpected death within a short period from policy inception.

  • When you buy single premium life insurance, you need to analyze single premium life insurance policies across different insurance providers and make a wise decision.
     

Our  TATA AIA Life, provides regular, single and limited premium payments for the life insurance savings plans. It would be best to consider your current financial status and future family commitments before choosing the premium payment option for the money-saving plan. The single premium life insurance rates vary based on the sum assured and the policy term. Therefore, you can decide on the most affordable option to stay invested in, securing the financial benefit for your family in your absence.
 

Conclusion


The single premium life insurance policy is a life insurance plan wherein you will make the premium payment once during inception. And, there will be no change in the death or maturity benefits during the policy term. Therefore, it is suitable for people with a lump sum amount wanting to invest in securing their family long-term. Moreover, there will be no financial stress of paying the regular premiums for ascertaining the benefit through the term. Finally, evaluating the benefits and tax* advantages before making a well-informed decision is important. Then, make a wise decision, stay invested and ensure the benefits! 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What is the difference between single premium and limited premium life insurance?

A single premium life insurance is a life insurance policy wherein the policyholder will pay the premium as a lump sum during policy inception for the entire policy tenure. On the other hand, in a limited premium life insurance, the policyholder will pay the premium regularly for a limited term of the policy tenure.

Can a single premium life insurance plan lapse?

As the premium for the single premium life insurance plan is paid entirely as a lump sum for the policy tenure at the beginning, the life insurance plan does not lapse. 

Disclaimer

  • 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 blog 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. The information 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 blog 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.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry