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Simplifying Life Insurance in India
Written By
Fathima Tabasum
Fathima Tabasum
Senior Marketing Associate
Fathima defines Digit's voice in life insurance with her strong command of language. Her creative, clear writing and research skills simplify complex concepts and build trust and engagement.
Reviewed By
Ashok Manwani
Ashok Manwani
Vice President - Products
Ashok is an insurance professional with extensive experience in product development and management. In his role at Digit, he focuses on creating innovative life insurance solutions tailored to meet diverse customer needs.
Single Premium Guaranteed Returns Plan in India
In the world of financial planning and insurance, one highly effective investment solution is the Single Premium Guaranteed Return Plan. This financial instrument offers a unique blend of insurance and investment, providing you with financial security and peace of mind. Invest once and enjoy life coverage and guaranteed returns.
Let’s have a look at these plans in detail, their benefits, and how they can be a valuable addition to your financial portfolio.
Table of Contents
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What is a Single Premium Guaranteed Return Plan?
Overview of Single Premium Guaranteed Return Plan
How Does a Single Premium Guaranteed Return Plan Work?
A Basic Single Premium Guaranteed Return Plan is a type of life insurance policy that offers a guaranteed return on your investment. Here's a breakdown of how it works:
Single Premium Investment
When you buy the policy, you invest a lump sum amount as a single premium.
Guaranteed Rate of Return
The insurance company guarantees a specific rate of return on your invested amount. This return is typically payable at the end of the policy term.
Fund Allocation
A portion or the entire premium is invested in various funds chosen by the policyholder. This part aims to grow the money over time.
Life Insurance Coverage
Throughout the policy term, you are covered by a life insurance policy.
Death Benefit
In case of your unfortunate demise during this period, the nominee receives the sum assured.
Maturity Benefit
Upon maturity of the policy, you or your nominee receive the guaranteed maturity benefit, along with any applicable bonuses.
Optional Riders
You can also add the available riders to customise the policy as per your requirements and enhance the benefits.
Understanding a Single Premium Guaranteed Return Plan
Understanding a Single Premium Guaranteed Return Plan
A Single Premium Guaranteed Return Plan is a type of life insurance policy where you pay a lump sum amount (single premium) at the beginning, and the policy guarantees a return after a specific period.
Here's an example to illustrate how this works for a person named Rajesh.
Rajesh, a 40-year-old freelance consultant, has always been cautious with his finances. With an irregular income, he needed a safe and secure investment option to ensure a stable future for his family. After much research, Rajesh found the perfect solution: a Single Premium Guaranteed Return Plan.
Profile Details:
- Name: Rajesh
- Age: 40 years
- Financial Goal: Secure a lump sum amount for future needs with guaranteed returns
- Investment Amount: ₹10,00,000 (single premium)
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Understanding Scenarios of Single Premium Guaranteed Returns Plan
Rajesh Recieves Guaranteed Maturity Benefit
Year 0: Rajesh pays ₹10,00,000 as a single premium.
Year 10: Rajesh receives the guaranteed maturity benefit of ₹15,00,000.
Rajesh managed to ensure his family's financial security by making a safe investment. He intended to use the ₹15,00,000 maturity benefit to support his children's education and save some for his retirement.
He might be eligible for tax benefits on the premium paid under Section 80C of the Income Tax Act, and the maturity proceeds could potentially be exempt from taxes under Section 10(10D), depending on the current tax regulations.
If Rajesh Passes Away
Benefits of a Single Premium Guaranteed Return Plan
Here are some of the most important features and benefits of a Single Premium Guaranteed Return Plan.
Single Premium Payment
As the most important feature, this plan requires a single lumpsum premium payment at the outset. Thus, you are done with a long-term life cover and investment with just one-time premium payment.
Life Insurance Coverage
It offers life insurance coverage, ensuring financial protection for your loved ones in the event of your unfortunate demise.
Guaranteed Maturity Benefits
A portion of your premium goes towards building a corpus. This is paid to you as a guaranteed maturity benefit on surviving the policy term. It depends on your age, premium, sum assured, policy term and a few other pre-decided factors, thus providing you with a predictable income stream or lump sum payout on maturity.
Surrender Benefit
These Plans attain a surrender value after the payment of a single premium. Usually, surrender is not allowed during the first year of the policy, and you can surrender it from the second year onwards. While it is always beneficial to continue your policy, however, if you need to surrender the policy for any reason, you are paid the higher of the two kinds of surrender values: Guaranteed Surrender Value or Special Surrender Value.
Loan Benefits
You can avail of a loan against these policies. The maximum loan amount that can be availed is usually up to a certain percentage of the policy's surrender value.
Tax Benefits
Tax Benefits are available on the premium paid and those received under Section 80C and Section 10(10D) of the IT Act as per the prevailing income tax laws and limitations.
Income Benefit
Some plans also provide the option of taking the death benefit in the form of regular income payouts instead of lumpsum.
Policy Continuity
Since the premium is paid upfront, in a single go, there is no chance of policy lapse due to missed premium payment.
Maximized Investment with Built-in Protection
Every penny of your premium is directly invested in the funds of your choice, ensuring your money starts working for you from day one. Some of the premiums are used to cover the risk of life insurance, which ensures that the insurer can provide a death benefit.
Diverse Fund Options
Expand your portfolio through a wide selection of funds, including Equity, Debt, and Balanced options, tailored to meet your financial goals and risk tolerance.
Multiple Fund Switches Without Charges
Adapt your investment strategy to market changes with the flexibility to switch between funds at no extra cost, maximising your potential returns.
Wealth Boosters
Enhance your investment value with Wealth Boosters, added as a bonus percentage of the premium paid, available upon the conclusion of your policy period.
Family Security Under the MWP Act
Ensuring your loved ones, your spouse and your children are financially secure in your absence is facilitated through the protections offered by the MWP (Married Women's Property) Act.
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Eligibility to Buy a Single Premium Guaranteed Return Plan
To be eligible for purchasing a Single Premium Guaranteed Plan in India, here are the key criteria you should be aware of:
Documents Required for Single Premium Guaranteed Return Plan
To secure a Single Premium Guaranteed Return Plan, applicants are required to submit the documents listed below:
Identity Proof
- Aadhaar card
- PAN card
- Passport
- Driving license
Address Proof
- Recent utility bill
- Bank statement
- Passport
- Aadhaar card
Age Proof
- Birth certificate
- Passport
- PAN card
Income Proof
- This is necessary, particularly for policies with a high sum assured.
- The last three months of salary slips
- Income Tax Returns
- Employer's Certificate
- Latest bank statement
- Recent Form 16
Medical Reports
Photographs
How to Buy a Single Premium Guaranteed Return Plan Online?
Buying a Single Premium Guaranteed Return Plan online is a straightforward process. Here’s a general step-by-step guide to help you:
Define Your Financial Objectives
Understand your financial goals and how much you can invest regularly or as a lump sum.
Compare and Choose the Right Plan
Research and compare plans, features, guaranteed returns, premium options, and policy terms.
Complete the Application Process
Fill out the online application form, providing personal, financial, and nominee details. Upload the necessary documents to support your application.
Customize and Make Payment
Add any optional riders or add-ons to enhance your policy. Then, pay the premium online using your preferred method—debit card, credit card, or net banking.
Who Should Buy Single Premium Guaranteed Return Plan?
Purchasing a single premium insurance plan can be an attractive option for specific individuals based on their financial situation, investment philosophy, and life stage. Here, we outline who might benefit the most from a single premium guaranteed return:
The Lump Sum Investors
Individuals who have recently received a significant sum of money, such as an inheritance, work bonus, or proceeds from the sale of an asset, may find a single premium insurance plan appealing. It allows them to make a one-time investment and enjoy the peace of mind of having their insurance needs covered.
Retirees Looking for Estate Planning Tools
Retirees who are keen on managing their estate efficiently might opt for single premium plans to transfer wealth to their heirs. These plans sometimes offer tax-efficient ways to pass on money to the next generation.
Wealthy Individuals Seeking Tax Shelter
In some jurisdictions, single-premium insurance plans come with tax advantages, such as tax-deferred growth on cash value or favourable tax treatment upon withdrawal. Affluent individuals looking to maximise their tax efficiency may consider this option.
Those Seeking a Simplified Insurance Experience
For people who prefer not to worry about recurring payments and policy lapses due to missed premiums, paying once and getting coverage for a lifetime can be particularly appealing. This is especially true for older adults managing their finances in retirement.
Young Professionals with Disposable Income
A young professional with substantial disposable income and fewer immediate financial responsibilities might choose a single premium plan as a hands-off investment vehicle. This way, they can ensure they are covered while focusing on other investments and life experiences.
Parents Planning for Their Child’s Future
Parents wanting to secure their child's financial future may invest in a single premium insurance plan early in the child's life. This ensures that the child has financial support and insurance coverage as they grow, regardless of future health changes.
Things to Consider Before Buying a Single Premium Guaranteed Return Plan
Things to Consider Before Buying a Single Premium Guaranteed Return Plan
Before investing in a Single Premium Guaranteed Return Plan, it's important to carefully evaluate the plan in consideration, its features, your financial situation and how the plan's benefits are aligned with your investment objective.
Here are a few important factors to consider and steps to take:
1. Evaluate your Financial Goals and Needs
Determine your financial objectives and why you are considering this plan. Do you plan to have a long-term investment, regular income post-retirement or to secure your family financially? Understanding your goals will help you select the most suitable plan for yourself.
2. Assess the Availability of Funds for Premium Payment
Single Premium Plans require a considerably high amount of premium to be paid upfront at one go. Consider the amount you can comfortably allocate towards this without straining your finances.
3. Check the Guaranteed Returns
Understand the guaranteed returns offered by the plan. How these returns are calculated and how they will be paid: whether as regular income or a lump sum at maturity.
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Relatable Real Life Examples of Single Premium Guaranteed Returns Plan
Mr. Patel, A Retiree
Mr. Patel has a substantial lump sum amount. He is looking for a secure investment option to supplement his retirement income. He invests 50 lakhs in a single premium guaranteed return plan with a 10-year term. The plan offers a guaranteed return of 8% per annum.
Benefits:
- At the end of 10 years, Mr. Patel receives Rs. 93 lakhs (approx.) as a guaranteed return.
- In case of an unfortunate event, his family is financially protected with the life cover.
Mr. Sharma, A Young Professional
Sharma, a young professional, wants to secure his child's higher education, so he invests Rs. 10 lakhs in a single premium guaranteed return plan for a 15-year term. The plan offers a guaranteed return of 7% per annum.
Benefits:
- At the end of 15 years, Mr Sharma receives a lump sum of Rs. 23 lakhs (approx.) to fund his child's education.
- The life cover ensures his child's future in unforeseen circumstances.
Mr. Mehta, A Wealthy Individual
Mehta, a wealthy individual, wants to pass on a substantial amount to his heirs. He invests a large sum in a single premium guaranteed return plan with a long-term horizon.
Benefits:
- The plan acts as a wealth transfer tool, ensuring the money grows at a guaranteed rate.
- Life coverage provides financial protection for the family during the accumulation phase.
How is Surrender Value Calculated in Single Premium Policies?
How is Surrender Value Calculated in Single Premium Policies?
In the case of a single premium policy, you pay a lump sum upfront, and the surrender value is typically calculated based on a percentage of this premium.
Several factors influence the surrender value of a single premium policy:
- The longer the policy term, the higher the surrender value is generally.
- Different insurers have varying surrender value terms.
- The type of policy (endowment policy, whole life cover insurance, etc.) also impacts the calculation.
- Some insurers impose surrender charges, which reduce the final amount received.
Tax Benefits of Single Premium Guaranteed Return Plan
Tax Benefits of Single Premium Guaranteed Return Plan
Single premium guaranteed plans, often called single premium life insurance (SPL), offer several tax benefits. here are the key points:
- Tax Deductions: The premium paid towards a Single Premium Life Insurance Policy is eligible for tax deductions under Section 80C of the Income Tax Act. You can claim deductions up to Rs. 1.50 lakhs for the premium paid.
- Tax-Free Maturity: The maturity benefit from a Single Premium Life Insurance Policy is tax-free under Section 10(10D) of Income Tax, provided the sum assured is at least ten times the single premium paid
- Tax-Free Death Benefit: In the event of the policyholder’s demise, the sum assured received by the beneficiaries is tax-free.
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A Single Premium Guaranteed Returns Plan, with its assurance of guaranteed returns and life insurance coverage, offers a solution to secure your aspirations and safeguard your loved ones’ financial future.
A simple investment with a single upfront premium payment, guaranteed returns, flexibility and potential for long-term growth makes it a valuable and easily accessible addition to any financial portfolio.
FAQs about Single Premium Guaranteed Return Plan
Can I choose the policy term for a single premium guaranteed plan?
Are SPGP suitable for retirement planning?
Are there any restrictions on using the maturity benefits of a single premium guaranteed plan?
What do you get at the end of the policy term?
Can I get a loan for a single premium guaranteed return policy?
Can you surrender the single premium policy?
What is the Free Look Period available in a life insurance policy?
What happens in case of life assured’s demise in this policy (death benefit)?
What happens in case the life assured commits suicide?
What happens when the submission of information is false or incorrect?
What is a single premium guaranteed return plan?
How does the single premium guaranteed return plan work?
Who should consider buying the SPGR plan?
Can I withdraw money before the maturity date?
Is there any risk involved with a single premium guaranteed return plan?
What are the benefits of single premium insurance?
How is a single premium guaranteed calculated?
How is a single premium determined?
What are the tax implications for the policyholder and the insurer under different tax regimes?
What is the expected lifecycle and renewal strategy for a single premium guaranteed return plan?
Who should consider a single premium term plan?
What are the drawbacks of single premium life insurance (SPL)?
Who is eligible for a single premium guaranteed return plan?
What types of deaths are covered under a single premium guaranteed return plan?
What is a modified endowment contract (MEC)?
Can I withdraw money from a single premium guaranteed return plan?
What are the tax implications of a single premium guaranteed return plan?
Who might need single premium life insurance (SPL)?
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