Regular Premium Vs Single Premium - Know Which is Better For You

While opting for a life insurance policy , the first and foremost factor to consider is the premium paying frequency. In simple words, you will have to determine whether you should opt for regular premium which you pay at pre-determined intervals or pay the entire premium at one go which is called as a single premium.Let’s find out what are the factors that should be considered and which type of payment frequency is better, regular premium or single premium .

The primary factor to consider while deciding which payment frequency to opt for is the cost. It may look that paying a single premium is cheaper than going for a regular premium policy. However, this is not always the case.For instance, X decides to opt for a policy which requires an annual premium of ₹10,000 for 15 years. This gives him a sum assured of ₹2,00,000 in which he pays ₹1,50,000 within a period of 15 years. On the other hand, his wife opts for a single premium option and thus pays ₹1,10,000. It is clear that his wife saved ₹40,000 in the process. However, the missing point is we have not considered the inflation factor. Even at an inflation rate of 6%, the single premium goes up to ₹2,63,000 in 15 years.

Needless to say, single premium products require large ticket sizes in lieu of premium amount in comparison to regular premium. While it may look cheaper and easier, it can drain your pocket, especially if you are a salaried professional.

The single premium option is more convenient than regular premium as one does not need to remember the due dates and the due amount.

Tax benefits are available on both regular premium and single premium. However, the limit for both these types under Section 80C is ₹1.5 lakhs per annum. However, the distinguishing factor is that with the single premium you can avail tax benefits only once, whereas, for regular premium, you can avail it throughout the policy term.

An investment in a life insurance policy is for the long-term, which means the policy would be for a longer tenure. In the case of a single premium, the investor is exposed to market volatility over the term of the policy whereas, in regular premium, the investor is shielded from the market ups and downs through rupee cost averaging.While there are certain advantages of single premium option, as illustrated above, a regular premium has long-term benefits, including covers for accidents, illness, etc. Regular premium is ideal for salaried individuals whereas single premium can opt if one has enough savings to park their money. But do take into consideration your long-term financial plan.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.