Life insurance plans are among the oldest financial products on the market. While their popularity has endured, the newer generation (Z, X, and millennials) has started displaying a renewed interest in various financial channels, such as investment and savings. Now, these individuals seek affordable policies that offer multiple customisations, and term insurance plans check all the boxes!
Apart from pocket-friendly premiums and customisation via term insurance riders, term insurance providers also offer multiple options to set the frequency of premium repayment (namely, regular, limited, and single premium payment options). While limited and regular premium payment options have become quite popular among term insurance policyholders, single payment options are not usually recommended.
So, why should you not opt for the single premium payment option for your term insurance plan? Here’s everything you need to know!
Best term insurance plan with single premium payment option
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What is the Single Premium Payment option in term insurance plans?
Just like the name suggests, Single Premium Payment option in term insurance is when the policyholder decides that he has enough finances set aside to pay for the entire policy at one go.
So, say Barnik (30-year-old male, non-smoker) decides to purchase a ₹2 crore term insurance plan that will cover him until he turns 65. Here’s how his premium payment options look -
- Single payment - He pays the entire premium at one go during the purchase of the policy.
- Regular payment - He pays monthly/quarterly/annually towards his policy till the plan matures (till he is 65)
- Limited payment - He pays his premiums for a pre-decided span of 5/7/10/12/15/until he turns 60 years. Within this period, the entire premium is paid off.
Should you opt for the Single Premium Payment option in term insurance policies?
Needless to say, since, more often than not, term insurance policies are preferred and bought due to the affordability factor, the single premium payment option doesn’t make much sense. Considering the one-time premium may take a serious toll on your financial health, this premium payment frequency is not widely recommended. However, there might be a few cases in which the single premium payment option might be just as suitable. Let’s take a quick look -
What are the advantages of the Single Premium Payment option in term insurance plans?
- Potential Cost Savings: Some insurance companies offer discounts or lower rates for single premium payments. By paying in a lump sum, you might lower the overall cost of the policy compared to spreading payments over time.
- Convenience and Simplicity: Paying a single premium upfront eliminates the need for recurring payments, reduces administrative tasks, and ensures you never miss a due date.
- No Risk of Policy Lapse: A single premium payment eliminates the risk of policy lapse due to missed or late payments, ensuring continuous coverage for the entire term.
- Estate Planning Advantages: A single premium payment for term insurance can aid in estate planning. The premium paid is typically not included in the insured person's estate, potentially offering estate tax benefits.
What are the disadvantages of the Single Premium Payment option in term insurance plans?
- No riders are offered - Since it’s a single premium payment for your term insurance plan, your insurer won’t be offering you any of the lucrative term insurance riders, which, otherwise, could have helped unlock the full potential of your plan. Needless to say, this affects the customisation perk extended by term insurance policies that can help you tailor your plan as per your evolving financial requirements and your family’s life-stage goals.
- High Upfront Cost: Paying the entire premium in one lump sum can be a significant financial burden, especially if you don’t have a large sum readily available. This may affect your cash flow and limit your ability to invest in other financial goals.
- Limited Liquidity: Once you pay the premium upfront, your money is locked into the insurance policy for the entire term. If you encounter an unforeseen financial emergency or need funds for other purposes, accessing the money paid as a premium can be difficult.
- Loss of Flexibility: Choosing a single premium payment reduces your flexibility in managing your insurance coverage. You cannot adjust the policy or change the coverage amount during the term. Life circumstances may change, and you might want the ability to modify your insurance coverage as needed.
- Opportunity Cost: By making a single premium payment, you miss the chance to invest that money elsewhere, potentially earning higher returns or fulfilling other financial needs. If other investments can provide returns, it might not be wise to tie up a large sum in a single premium payment.
Things to consider before you purchase a term insurance plan with a Single Premium Payment option
#1: Your Investment Goals: If you want to invest your money, a single premium term insurance policy might not be the best option. The death benefit of a term insurance policy isn't guaranteed, so you could lose your investment if the insured person dies before the policy term ends.
#2: Your Financial Situation: If you don’t have a lump sum of money available, a regular/limited premium payment option might be a better fit.
#3: Your Risk Tolerance: If you're uncomfortable paying a larger premium upfront, a regular premium policy may be more suitable.
What are the best term insurance plans with a single premium payment option?
- Max Life Smart Total Elite Protection: This upgraded version of the Max Life Smart Secure Plus policy includes built-in features like Insta payment on claim intuition (₹2 lakhs instant disbursal once the beneficiary informs the provider about the policyholder’s death) and cover continuance benefit (premium). The plan is comprehensive, affordable, and comes with several riders:
- Critical Illness benefits (covering 64 and 22 ailments)
- Total and Permanent Disability rider
- Zero Cost Option
- Smart Exit Option
- Waiver of Premium
Drawbacks: The plan requires policyholders to have a minimum annual income of ₹10 lakhs and offers coverage of ₹2 crores or more.
2. HDFC Life Click2Protect Super: Although this plan is pricier, it is comprehensive and popular in the industry. It has three variants (Life, Life Plus, and Life Goal) and includes riders such as:
- Return of Premium
- Waiver of Premium on Total and Permanent Disability
- Renewability Option at Maturity
- Life Stage Option
- Waiver of Premium on Critical Illness
- Spouse Cover Option
Drawbacks: The plan is slightly more expensive.
3. Bajaj Life eTouch: One of the most affordable term insurance plans, it comes in three variants: Life Shield, Life Shield Plus, and Life Shield Return of Premium. The plan is popular for its budget-friendly premiums and features like:
- Return of Premium
- Waiver of Premium on Total and Permanent Disability
- Renewability Option at Maturity
- Life Stage Option
- Waiver of Premium on Critical Illness
- Spouse Cover Option
Drawbacks: The plan does not include a Critical Illness Rider, either as a built-in feature or as an optional rider.
4. ICICI Prudential iProtect Smart: This is the only term insurance plan offered by ICICI Prudential, making it comprehensive and affordable. The iProtectSmart policy includes features like:
- Life Stage Benefit Option
- Waiver of Premium in case of total permanent disability
- Zero Cost Term Plan Option
The plan also offers riders such as:
- Accidental Death Benefit
- Critical Illness Benefit
Drawbacks: The insurer recently experienced a decline in overall operational efficiency, making it potentially less reliable for term insurance.
5. Tata AIA Maha Raksha Supreme: This popular and affordable policy includes features such as:
- Waiver of Premiums
- Critical Illness Rider
- Total Permanent Disability Rider
- Critical Illness Benefit
- Accidental Death Benefit
Drawbacks: The plan is available only to individuals with an annual income exceeding ₹15 lakhs and offers coverage of ₹2 crores or more.
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Conclusion
Choosing the single premium payment option for term insurance requires a careful evaluation of your financial goals, circumstances, and preferences. This option provides convenience, potential cost savings, and the benefit of a fully paid-up policy. However, you must consider the financial implications and opportunity costs of a lump sum payment. As you explore term insurance options, weigh the pros and cons to make an informed decision that aligns with your specific needs and long-term financial objectives.
