Life Insurances 198 views
Manish Sharma is working in a renowned company in Gurgaon. Recently, this 32 year old gentleman made plans to purchase a life insurance policy. And, he is eagerly expecting his yearly bonus from his employer which actually has put him in a quandary that whether he should opt for a single premium policy or should go with a regular one.
Well, usually the choice to opt the one depends on the income of the policyholder, his/her commitment levels, and last, but not the least the extra benefits of the policy. Below are the factors that can help Manish to make his choice:
The first and foremost thing to consider is whether Manish can easily afford to pay a large single premium. However, while his company bonus is expected to be sizeable, thus it is not possible to cover all the costs. Usually, salaried people like him, may find it difficult to pay the large amount at a time. And, people like him might have to take the help from their savings in order to pay the single premium. Thus, this situation can be avoided, if you have a regular policy.
Manish being a forgetful person fears that he might miss paying his policy premiums on time. And, this thing could lead to the policy lapse. Well, in this situation, it is advisable to opt for a single premium policy, if he can afford.
Sum assured and premiums
When it comes to a regular long-term plan i.e. with terms of 5, 10, or 15 years, it would not be wrong to say that the premiums are spread over an extended period. Moreover, policyholders generally been given a choice for the number of years they are willing to pay the premiums. In fact, the premiums can also be spread over the first few years for a specific amount as sum assured. Through this way, the premiums will be lower against the onetime premium payment.
Furthermore, if experts are to be believed, single premium policies are considered as cheaper than regular ones. For example- Manish has has to pay Rs 10,000 as annual premium for 15 years for the sum assured of Rs 2,00,000. This man ends up paying Rs.150,000 by the end of the policy tenure. But, he would have opted for a single premium policy, he will have to pay only Rs. 110,000 for the same tenure as well as sum assured. In fact,by opting for single premium, he would have save Rs. 40,000.
However, while taking the inflation into account, the scenario might be different. Yes, because with 6% rate of inflation, Rs.110,000 will be worth of Rs. 263,000 for 15 years. Thus, it means that Manish will have to pay much more for the same sum assured. So, you always need to keep this factor in mind while deciding which policy to choose.
Many of you will surely agree on the fact that life insurance policies are considered as a long-term instruments which means that Manish has to pay a policy with a longer tenure. However, if he wants to pay a single premium, he is exposing himself to the possible market volatility over the term of the life insurance policy.
Whereas, a regular product on the contrary shields him from the ups and downs of the market as he gets the advantage of the rupee cost averaging, the process that actually helps with the average cost of investment in different investment cycles as this thing will protect him from the market risks.
Both types of insurance provide you with the tax deduction benefits of up to 1.5 lakh under section 80C of the Income Tax Act. But, here regular policies look all the more attractive as far as taxation issues are concerned. Furthermore, the policyholders have the choice of claiming the tax exemption for the amount they pay for these life insurance policies every year. It would not be wrong to say that the tax exemption for single payment policies is available only for the year the policy is bought. Actually, the single payment policies are chosen by those who are interested in ULIPs to do the investment.
Furthermore,the regular life insurance policies are usually available with value added benefits. Yes, they include covers for-accidents, illnesses, etc. While on the contrary, single premium policies don't have such advantage. Even though they have certain advantages, but regular premium policies come with more features. So, if you are also a salaried person like Manish, it would be better to opt for a regular premium life insurance policy. However, you might go for single premium option, but be careful as it will remain there with you long-term financial plan.