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.

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What is a Single Premium Guaranteed Return Plan?

A Single Premium Guaranteed Return Plan is a type of life insurance policy that stands out for its guaranteed return by paying a premium just once. Unlike the regular guaranteed return plans that require you to pay regular premiums over the years, a single premium plan allows you to make a one-time lump sum payment to the insurance provider.

Overview of Single Premium Guaranteed Return Plan

Feature Description
Plan Type Single Premium Guaranteed Return Plan
Premium Payment Single premium (one-time payment)
Policy Term Typically ranges from 5 to 20 years
Guaranteed Returns Guaranteed maturity benefit as specified in the policy document
Death Benefit Sum assured or a guaranteed amount, whichever is higher, payable on death
Maturity Benefit The lump sum amount payable at the end of the policy term
Surrender Value Minimum guaranteed surrender value if the policy is surrendered before maturity
Loan Facility Policy loan available after a certain period, subject to terms
Tax Benefits Premiums paid may qualify for tax deductions under relevant tax laws
Bonus Non-participating (no bonus) or participating (may receive bonuses)
Entry Age Typically between 18 to 60 years
Maturity Age Usually up to 70 or 75 years
Free Look Period 15 to 30 days from receipt of policy to review and cancel if not satisfied
Eligibility Varies by provider; generally requires medical underwriting
Riders/Additional Benefits Optional riders such as accidental death, critical illness, etc.

Understanding a Single Premium Guaranteed Return Plan

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:

  • When you buy the policy, you invest a lump sum amount as a single premium.
  • 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.
  • A portion or the entire premium is invested in various funds chosen by the policyholder. This part aims to grow the money over time.
  • Throughout the policy term, you are covered by a life insurance policy.
  • In case of your unfortunate demise during this period, the nominee receives the sum assured. 
  • Upon maturity of the policy, you or your nominee receive the guaranteed maturity benefit, along with any applicable bonuses.
  • You can also add the available riders to customise the policy as per your requirements and enhance the benefits.

Important Consideration

The guaranteed returns in the single premium guaranteed return plan are generally lower than market-linked investment options. Your money is locked in for the policy term, making it less accessible than other investment avenues. It is advisable to consult a tax advisor to understand the tax benefits and liabilities associated with the plan.

How Does a Single Premium Guaranteed Return Plan Work?

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)

Policy Details:

  • Policy Term: 10 years
  • Sum Assured: ₹15,00,000 (the guaranteed return)
  • Maturity Benefit: The amount received at the end of the policy term, which includes the guaranteed return and possibly a loyalty addition or bonus, depending on the insurer's terms.

Rajesh pays ₹10,00,000 as a single premium at the start of the policy. The policy term is 10 years. During this period, Rajesh does not need to make any additional premium payments. At the end of the 10-year term, He will receive a guaranteed sum of ₹15,00,000. This amount is pre-defined and is not subject to market risks.

Maturity Scenario in Single Premium Guaranteed Return Plan

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.

Death Scenario in Single Premium Guaranteed Return Plan

If Rajesh were to pass away before the end of the 10-year term, his nominee or beneficiary would receive the death benefit, which would be significantly higher than the ₹10,00,000 single premium paid. This amount would help the family manage financial obligations in the absence of the primary earning member.

 

Disclaimer: The information provided in the Single Premium Guaranteed Return Plan is illustrative and based on assumed rates of return. Actual returns may vary, and the final death benefit amount could differ from the figures shown.

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.

1. 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.

2. Life Insurance Coverage

It offers life insurance coverage, ensuring financial protection for your loved ones in the event of your unfortunate demise.

3. Guaranteed Maturity Benefits

A portion of your premium goes towards building a corpus. This is paid to you as 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.

4. Surrender Benefit

These Plans attain a surrender value after the payment of single premium. Usually, surrender is not allowed during the first year of the policy and you can surrender it from second year onwards.

While it is always beneficial to continue your policy, however, if you need to surrender the policy due to any reason, you are paid the higher of the two kinds of surrender values: Guaranteed Surrender Value or Special Surrender Value.

5. Loan Benefits

You can avail 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.

6. 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.

7. Income Benefit

Some plans also provide the option of taking the death benefit in the form of regular income payouts instead of lumpsum.

8. Policy Continuity

Since the premium is paid upfront, in a single go, there is no chance of policy lapse due to missed premium payment.

9. 100% Investment of Your Premium

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.

10. 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.

11. 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.

12. 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.

13. 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.

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:

Eligibility Description
Age The minimum age at entry is typically 18 years or above, and the maximum usually varies between 60 and 70.
Medical Examination/Records Some plans may require a medical examination based on the applicant's age and the sum assured, as pre-existing conditions can impact eligibility or premiums.
Income Proof Make sure that the premium you are paying aligns with your income level. Some insurance providers may ask for proof of income in order to evaluate your risk profile before allowing you to invest in the plan.
Nationality Must be a resident of India.

Documents Nedeed for Single Premium Guaranteed Return Plan

To secure a Single Premium Guaranteed Return Plan, applicants are required to submit the documents listed below:

Document Type Description
Proof of Identity
Proof of Address
  • 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.
  • Last three months of salary slips
  • Income Tax Returns
  • Employer's Certificate
  • Latest bank statement
  • Recent Form 16
Medical Reports Depending on the sum assured, medical tests or reports might be required
Photographs Passport-sized photographs of the policyholder

Note: Depending on the insurer's requirements, each section requires one or two documents as proof for a single premium guaranteed return plan.

Simple Steps for Buying 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:

  • Step 1: Understand your financial goals and how much you can invest regularly or as a lump sum. 
  • Step 2: Research and compare plans, features, guaranteed returns, premium options, and policy terms.
  • Step 3: Initiate the process by completing the online application form.
  • Step 4: Provide your personal information, financial details, nominee details, and upload the necessary documents.
  • Step 5: Include additional riders or add-ons required for your policy.
  • Step 6: Pay the premium online using a debit/credit card or net banking.

Note: Once you receive the policy document, it’s important to read it carefully to understand the terms and conditions, including the surrender value, loan benefits, and any additional riders you may have opted for.

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

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 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.

4. Evaluate if the Insurance Coverage is Sufficient

Does the insurance coverage provide the required cover for your family? Will it support them sufficiently in case of your unfortunate demise and take care of all financial requirements. Understand the coverage details thoroughly and decide a coverage amount that is sufficient for your family’s financial protection.

5. Know About the Surrender Value

Familiarise yourself with the surrender value of the policy. You will receive this amount if you decide to terminate your policy prematurely.

Thus, you must know what amount you will receive if you need to surrender your policy due to unforeseen circumstances.

6. Research About your Insurance Provider's Reputation

Research the insurance company offering the plan. Look into their financial stability, claim settlement history, processes, solvency ratio and customer reviews to gauge their reliability.

A reliable insurer with a good history of claim settlements, especially the one that is digital process oriented is more likely to provide you a hassle-free experience during buying, claims, or any other process.

7. Review the Policy Document Carefully

The most underrated and yet, the most crucial step. Carefully read the policy document and disclosure materials provided by the insurer.

Ensure you understand all terms and conditions before committing to the plan. With this, you know what to expect, when to expect and how to make the best out of your investment.

8. Compare with Other Available Options

Compare the plan in consideration to similar plans available in the market. You can also compare your single premium plan to regular premium and other plans and see which one best aligns with your investment objectives and offers the best value for your money.

Some Relatable Real Life Examples

Mr. Patel, 55 years, Businessman (A Secure Retirement)

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 (Child's Education)

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 (Wealth Transfer)

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?

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, whole life, etc.) also impacts the calculation.
  • Some insurers impose surrender charges, which reduce the final amount received.

Types of Surrender Values in Single Premium Policies

1. Guaranteed Surrender Value (GSV)

This is the minimum amount that an insurance company pays to the policyholder when they surrender the policy. It is usually a percentage of the total premium paid (it ranges from 30% to 50%, depending on the premium paid) and is predetermined at the time of policy purchase.

2. Special Surrender Value (SSV)

If premium payments cease, a life insurance policy converts to a paid-up policy with reduced coverage. When the policy is surrendered, the insurer calculates the surrender value based on the paid-up value, surrender value factor, and any bonuses. This is usually higher than the GSV.

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 Benefit Description
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.
Other Tax-Saving Options Explore other tax-saving avenues, such as Section 80D (health insurance) and Section 24 (home loan interest) deductions.
Modified Endowment Contract (MEC) SPL policies are typically considered MECs, which have specific tax characteristics. Withdrawals from an MEC may be subject to tax and penalties.

It’s important to note that while SPL policies can provide significant tax advantages, they also come with certain restrictions and considerations. It’s advisable to consult with a financial advisor or tax professional to understand how these benefits apply to your circumstances.

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?

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Yes, you can choose the policy term that aligns with your financial goals and needs.

Are SPGP suitable for retirement planning?

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Yes, single premium guaranteed plans are one of the most suitable products for retirement planning. You can invest a lumpsum amount as a single premium during your earning years. Then the guaranteed returns can be used after retirement as potential income streams.

Are there any restrictions on using the maturity benefits of a single premium guaranteed plan?

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Generally, there are no restrictions on how you use the maturity benefits from a single premium guaranteed plan. Once the policy term ends, the benefits are yours to use as you see fit.

What do you get at the end of the policy term?

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At the end of the policy term, you typically receive the sum assured in lump sum along with any bonuses or guaranteed additions, depending on the terms of your policy.

Can I get a loan for a single premium guaranteed return policy?

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Yes, most Single Premium Guaranteed Plans allow you to take out a loan against the policy. The plan provides for loans against the policy after completion of one year, with the loan amount being 90% of the surrender value, subject to the terms and conditions of the insurer.

Can you surrender the single premium policy?

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Yes, you can surrender a single premium policy, but there is usually a surrender period and penalties. You will receive less than the premium paid, either the guaranteed surrender value (GSV) or potentially a higher special surrender value (SSV).

What is the Free Look Period available in a life insurance policy?

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The Free Look Period is a time frame, usually 15 to 30 days, during which you can cancel your policy without penalty if it doesn’t meet your needs.

What happens in case of life assured’s demise in this policy (death benefit)?

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If the life assured dies during the policy term, the nominee or beneficiary typically receives the sum assured along with any accrued bonuses or guaranteed additions.

What happens in case the life assured commits suicide?

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Suppose the life assured commits suicide within a specified period from the policy start date (usually one year). In that case, the claim by the nominee may be rejected or limited to a refund of premiums paid, depending on your policy terms and conditions.

What happens when the submission of information is false or incorrect?

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If the information provided when taking the policy is false or incorrect, the policy may be considered void, and any claims may be denied.

What is a single premium guaranteed return plan?

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A Single Premium Guaranteed Return Plan is a type of insurance where you make a one-time premium payment in exchange for guaranteed returns at the end of the policy term.

How does the single premium guaranteed return plan work?

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You pay a lump sum as a single premium. The insurer then guarantees a return paid out at the end of the policy term, either as a lump sum or in regular payouts, depending on the plan’s structure.

Who should consider buying the SPGR plan?

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This plan is suitable for individuals with a lump sum amount available and who want to invest it to receive guaranteed future returns. It’s also beneficial for those looking for tax-saving investment options.

Can I withdraw money before the maturity date?

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Early withdrawal may be possible, but it could attract penalties or reduce the guaranteed returns. It’s essential to check the specific terms and conditions of your policy.

Is there any risk involved with a single premium guaranteed return plan?

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Since the insurance company guarantees the returns, the risk is generally lower than market-linked investment options. However, it’s crucial to consider the insurance company's financial stability and reputation.

What are the benefits of single premium insurance?

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The policy provides a complete payout for terminal illnesses and covers critical illnesses. Additionally, it includes a guaranteed death benefit for beneficiaries, potential tax advantages, and the convenience of not having to make ongoing premium payments. Some policies may also allow access to a portion of the death benefit for long-term care needs.

How is a single premium guaranteed calculated?

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Single premium guaranteed returns are calculated using complex actuarial models. Factors include mortality rates, interest rates, expenses, and the promised return. Insurers build in a safety margin to cover risks.

How is a single premium determined?

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The single premium for a life insurance policy is determined based on several factors, including the insured’s age, health, gender, and the desired level of coverage. This lump sum payment is non-refundable and makes the policy fully paid immediately after the payment.

What are the tax implications for the policyholder and the insurer under different tax regimes?

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For policyholders, the Single Premium Guaranteed Return Plan’s maturity proceeds are tax-free under Section 10(10D), provided premiums are within 10% of the sum assured. Insurers must maintain reserves, which affects their tax treatment. Tax laws vary, and professional advice is recommended for specifics.

What is the expected lifecycle and renewal strategy for a single premium guaranteed return plan?

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A single premium guaranteed return plan typically has a fixed term. There is no renewal. Upon maturity, the policyholder receives the guaranteed amount plus any accrued bonuses.

Who should consider a single premium term plan?

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A single premium term plan suits individuals with a lump sum to invest, seeking short-term life coverage without ongoing premium payments. Ideal for those with irregular income or wanting to secure a temporary financial safety net.

What are the drawbacks of single premium life insurance (SPL)?

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Single premium life insurance requires a large upfront payment, limiting flexibility and access to funds. Early withdrawals often incur penalties and taxes.

Who is eligible for a single premium guaranteed return plan?

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Generally, individuals aged between 18 and 65 can avail of single premium term insurance plans.

What types of deaths are covered under a single premium guaranteed return plan?

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These plans typically cover natural deaths and deaths caused by accidents or critical illnesses.

What is a modified endowment contract (MEC)?

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A Modified Endowment Contract (MEC) is a life insurance policy that loses its tax benefits due to excessive premium payments within a specific period. All single-premium policies are considered MECs, which have tax implications.

Can I withdraw money from a single premium guaranteed return plan?

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Some policies may allow you to withdraw or borrow against the policy's cash value. However, this will typically reduce the death benefit accordingly.

What are the tax implications of a single premium guaranteed return plan?

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While there can be tax benefits, such as tax-deferred growth of cash value, withdrawals or loans from an MEC may be taxable. It’s essential to consult with a tax advisor for specific tax advice related to single-premium life insurance policies.

Who might need single premium life insurance (SPL)?

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Individuals who have received a windfall, like an inheritance or a large bonus, and want to secure life insurance coverage without ongoing premium payments might find single premium life insurance (SPL) suitable.

Other Important Articles Related to Guaranteed Returns Plan

FD vs RD
Investment Options Better than FD
Single Premium Guaranteed Return Plan

Disclaimer

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  • This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
  • All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
  • Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.

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