A single-premium life insurance policy requires a one-time payment for insurance coverage throughout the policy’s duration. This type of plan eliminates the need for ongoing tracking and periodic payments.
Keep reading to learn who can consider buying a single premium term insurance plan and avail of its benefits.
Who Should Buy a Single Premium Term Insurance Plan?
Following are the situations in which you should consider buying a single premium term insurance plan:
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Fluctuating Income
A single premium plan can be a lifesaver if your job or business brings in irregular earnings, like for freelancers or entrepreneurs. You can invest when you have excess cash to meet any financial need during periods when you earn less.
Hectic Schedules
Suppose you have a hectic schedule, making regular premium payments for the policy difficult. In that case, the single premium policy is helpful since it provides a one-time payment option. Paying your premium in full at once will help you avoid the inconvenience of monitoring payment deadlines.
Lump Sum Amounts in Hand
If you receive a lump sum amount from sources like property sales, business gains, or investment maturity, investing in a single premium plan provides immediate coverage for the entire policy duration.
Maturity Proceeds from Existing Policies
Suppose the existing insurance policy matures, and you get the proceeds, but you still want to continue life coverage without additional investments. In that case, you can choose the single-premium term insurance plan using the maturity proceeds as the suitable option.
Eligibility Criteria for Single Premium Term Insurance Plan
The following are the eligibility criteria to apply for this life insurance plan:
- Age: You must be between 18 to 65 years old.
- Health: You should be in good health without any pre-existing medical conditions.
Required Documents for Single Premium Term Insurance Plan
The following is the list of documents you are required to provide:
- Address Proof: Bank statement, utility bill, or rental agreement
- Identity Proof: Passport, driving license, or PAN card
- Income Proof: Salary slips, bank statements, or tax returns
- Medical Reports: Depending on your age and health, you might need to undergo a medical exam and provide the results
Remember to check with your insurance company for specific requirements.
Benefits One Can Enjoy From a Single Premium Term Insurance Plan
Here are the key benefits of a single premium term insurance plan:
● Prevent Policy Lapse
Unlike standard policies, a single premium term insurance plan does not require regular payment. Hence, the policyholder does not have to worry about payment.
● Discounted Premiums
A notable advantage of single-premium insurance packages is that they offer great discounts. Insurers regularly encourage early payments by cutting the overall coverage amount, offering a lower total insurance premium than regular installment payments.
● Tax-Free Investment
When you have a lump sum amount, you risk spending it or facing taxes on interest. Opting for a single premium plan eliminates ongoing payment obligations, offers the convenience of a one-time payment, and may provide double tax benefits.
What are the Tax Implications of Single Premium Term Insurance?
The following highlights different conditions for tax exemption:
- Your premium is tax-exempt under section 80C, up to a maximum of ₹1.5 lakh. However, the premium amount eligible for exemption should not exceed 10% of the sum assured, and if it does, only 10% of the sum assured is eligible for tax exemption.
- Maturity proceeds are tax-free under section 10(10D) up to ten times the premium paid for the policy. However, a 1% TDS applies here.
- The death benefit is completely tax-free.
- If you terminate the policy after 2 years, the proceeds are tax-free. However, if you terminate before 2 years, the previously provided tax exemption is treated as income and taxed accordingly.
Thus, a single premium term insurance plan is best for you if you are in any of the abovementioned situations. With this plan, you can ensure continuous coverage without worrying about policy lapses and enjoy knowing you are financially protected.