Term Insurance Plan is an extremely important product for the financial security of your family. It provides strong financial support to your family after you. But many times investors fail to maintain it for a long time. The responsibility of paying premiums year after year for a long time often becomes heavy. Some people stop paying the premium of the term plan after a few years thinking that they will not get all this money back.
In such a situation, the question arises whether it would be better to choose a lump sum payment i.e. Single Premium Term Plan. Here we will understand the advantages and disadvantages of a single premium plan in depth so that you can decide whether this option is right according to your needs or not.
What is Single Premium Term Insurance
Single Premium Term Insurance Plan is an insurance scheme in which you have to pay the premium only once, as a lump sum amount. After this, this policy remains valid for its entire tenure. This period can be anything up to 10, 20, 25, or 30 years according to your plan.
During this entire period, the insured person gets the protection of life insurance. There is no need to pay the premium annually, monthly, or every three months, which eliminates the risk of forgetting the premium or policy lapse.
Major Benefits of Single Premium Term Plan
Single premium term plans have several tremendous advantages that make them an attractive option for certain investors:
No Risk of Policy Lapse
The biggest advantage of such a plan is that there is no need to make repeated payments. Once the premium is paid, the policy continues to run and there is no risk of it lapsing. This is a very useful scheme for those who have received a lump sum amount from somewhere, such as business profits, inheritance, or a bonus and want to use it in a better way.
Discount on Premium
Many insurance companies offer some discount on single premium plans or keep the premium rate low, which can make this plan cheaper in the long term. Paying a lump sum also ensures that your family will get life insurance coverage during the policy term. It also provides mental peace.
Tax Benefits
The premium of these plans gets tax exemption of up to ₹1.5 lakh under Section 80C of the Income Tax Act. Apart from this, the amount received by the nominee on the death of the policyholder is also tax-free under Section 10(10D). This dual benefit makes it even more attractive.
Freedom from Premium Payment Worry
The most important benefit is that once the payment is made, you never have to worry about remembering the date of the premium payment or arranging money again.
Disadvantages of Single Premium Term Plans
Although single premium plans have their advantages, they also have some significant disadvantages that are important to understand:
Burden of Paying a Large Amount at Once
First of all, a large amount has to be paid upfront. This can be a financial burden for many people. If you do not have that much money, this option can adversely affect your other financial needs and goals.
Lack of Riders in the Plan
Usually, such plans do not offer extra coverage like Critical Illness or Accidental Death Riders, which are easily available in regular premium plans. This reduces its flexibility.
Opportunity Cost
Another disadvantage of single premium plans is the opportunity cost of investment. By paying a lump sum premium, you lose the opportunity to invest that amount somewhere else, where you could have probably got better returns. If you had chosen any other investment option, your capital could have grown better.
No Maturity Benefit
Like any other pure-term plan, single premium plans also do not have any maturity benefit. That is, if the insured person survives the policy term, he does not get any payout. This is important for those who expect some return in return for their premiums. While this applies to any pure-term plan, a large amount has to be paid at once in a single premium, so the absence of maturity benefit can be more disappointing.