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Single Premium vs Regular Premium Policy – Which is better?

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Premiums are an important aspect of a life insurance policy. Anyone who has purchased an insurance policy would have heard about premium paying frequency. It is nothing but the intervals in which you want to pay the premiums for the policy – One time lump sum, Monthly, Quarterly, Half yearly or Annually? Let us now check which one scores better – single premium policy or regular premium plan such as quarterly, half yearly, etc. We will do the comparison based on various parameters.

Also Read: Online vs Offline Term Plans

Which one is cheaper?

Cheaper premium is definitely the most important parameter to consider while purchasing an insurance policy. Which among the two is cheaper? Let us do this comparison by considering the premiums of an insurance policy with options for yearly mode of payment and single premium.

A 30 year old pays an annual premium of Rs. 10,000 for 15 years for a sum assured of Rs. 2,00,000. Hence, he ends up paying a total amount of Rs. 1,50,000 at the end of the tenure. However, the single premium option requires him to pay only Rs. 1,10,000 now for the same sum assured and policy tenure. This clearly gives him a saving of Rs. 40,000 on the policy. So, a onetime premium policy costs him lesser than a regular premium policy, isn’t it? Think again.

The single premium of Rs. 1,10,000 now will eventually be Rs. 2,63,000 after 15 years at an inflation rate of 6% p.a.  It means you are actually paying a lot more on the policy in terms of time value of money. Though this is an example, you need to compare it these terms to check which type of policy frequency will benefit in terms of cost.

How about tax deduction?

Both of these offer tax deduction benefit under section 80C up to Rs. 1 lakh p.a. However, tax benefit for one time premium policy can be availed only once whereas the regular premium policy will provide you tax deduction continuously. In the above example, one time premium gives your benefit of 1 lakh for one time. For the regular premium policy, you can avail the tax benefits for Rs. 1.5 lakh over a period of 15 years.

Can you afford it?

Opt for the one time premium policy only if you can afford it. You do not have to strain your finances by pulling out money from your investments for this purpose. In case you have enough money lying idle or if you receive a huge amount of money as lump sum, you can opt for one time premium.

If you have higher income, paying the entire amount at one go will not trouble you much. However, if you are in the middle income group, it is better to go for regular premium option.

Illustration of a single premium policy by LIC -

single premium policy



















What about Convenience?

If you believe it’s not convenient for you to opt for regular premium policy, you can choose the one time premium option. Such an option will help you to avoid policy lapse and hence prevent you from losing on policy benefits. Also, if you are a business man, you might not have a fixed cash flow. Hence, he can opt for a single premium policy whenever you get a lump sum amount.

Risk and Returns

Traditional policies provide risk free returns. However, for market linked policies, returns vary according to the market situation. In such a scenario, you would be exposed to a higher risk by investing bulk amount through a single premium policy. By opting for a regular premium policy, you would gain the benefit of averaging the cost of your investment in different market cycles. This is popularly known as ‘Rupee cost averaging’.

Also, regular premium policies have delivered slightly higher rate of return compared to their counterpart single premium policies.

According to Sum Assured

Usually, single premium policies offer lesser sum assured compared to regular premium ones. This is because the insurer can take higher risk in case of regular premium plans on account of continuous cash flows coming in.

Final Word

So, choosing the type of frequency payment for your insurance policy depends on your requirements and suitability. The above parameters should help you while making this decision.

  • skdash

    Good one. But Regular Premium is always better. If the insurer dies after paying single premium, then it is a waste, but in case of Regular premium, death of the insurer will stop all future premium payment and the legal heir will get the SA by lesser premium payment.

    • Yogi Cfp

      You are right. Each one has its own pros and cons, though. It all depends on your need.

  • rajiv ahuja

    Nice article. Explains the single premium vs regular premium

    • Yogi Cfp

      Thank you Rajiv.

  • Sunny

    If I invest 1 lakh as single premium. Will I get tax benefit for 1 lakh or 10% of the sum assured.?

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