When it comes to life insurance, individuals often seek a solution that provides comprehensive coverage with minimal hassle. Single Premium Term Insurance is designed to meet this need by offering a simplified approach to life insurance coverage. 

Unlike traditional term insurance plans that require regular premium payments, single premium term insurance allows policyholders to make a one-time lump sum payment at the beginning of the policy term.  

Let’s see an example:

Rituraj, an entrepreneur, made a decent profit in the second year of operating his newly founded business. He wants to invest his share of the gain in an insurance product but needs to finalise the same.

Given the volatile nature of his earnings, he is hesitant to commit to regular payments. 

That's when his insurance advisor friend told him about the Single Premium Term Insurance Plan, wherein Rituraj can secure his family's financial future by investing a one-time lump sum amount. 

Perfect fit, Isn't it?

Let us read more about a Single Premium Term Insurance Plan and how you can use it to secure your family's future. 

As the name implies, a Single Premium Term Insurance is a unique life insurance offering that provides individuals with the convenience of making a lump sum payment upfront for coverage over a specific term. 

Unlike the term insurance plans that involve regular premium payments, single premium term insurance allows policyholders to secure immediate protection by paying a one-time premium.

This type of insurance plan is ideal for those who prefer the simplicity of a single payment and desire long-term financial security for their loved ones. 

Single Premium Term Insurance Plans come with their own set of benefits. However, these benefits might apply to one person and not to others. You can assess your situation and requirements, and accordingly plan to buy a term plan variant.

Here are a few scenarios where opting for single premium term insurance can be advantageous:

1. You Are In a Profession With Irregular Earnings

When you are in a volatile profession with irregular earning, a single premium term insurance is more beneficial since you need not commit to regular premium payments. 

You can buy the plan whenever you have a surplus for investment, thus ensuring that your life is adequately covered even during phases of low earnings.

For example, certain professions, such as freelancers, artists, or entrepreneurs, often experience fluctuations in income. 

2. You Are In a Hectic Schedule

Regular payment term insurance requires a disciplined premium payment, regularly and over a good number of years. If you are in a busy schedule, you might forget to pay the premium on time, which may pose a risk of policy lapse.

In such a case, you might prefer paying the full premium in one go and then forget about the tension of monitoring and ensuring premium payments on time. 

3. You Have Some Lump Sum Amount In Hand

Single Premium Term Insurance can be a good alternative if you have some lump sum amount in hand. For example, proceeds from a property sale, a windfall gain in business, a cash gift, or some investment maturity. 

In such cases, the amount can be invested in the mentioned plan in one go, and you receive insurance coverage for the complete tenure of the policy. 

4. You Have Received Maturity Proceeds From the Insurance 

Your life insurance policy just matured and you received the maturity proceeds. However, you want to continue the life coverage without investing any fresh amount from your side.

In such a case, consider investing the maturity proceeds in a Single Premium Term Insurance. 

Here are the significant benefits of Single Premium Term Insurance:

1. Avoid Policy Lapse

Insurance policies are valid for a long tenure and require premium payments on time regularly. A single miss of premium payment, be it at any year of the tenure, can result in the lapse of your policy, irrespective of how many years you have already paid the premium. With a single premium term insurance, you don't need to worry about regular, timely payments and can lead a stress-free life. 

2. Tax-Free Investment

With a lump sum amount in hand, there's a chance of spending it or incurring taxes on the interest if you opt for an FD. In such cases, it is more advantageous to consider a single premium plan wherein you can eliminate the ongoing payment liability, enjoy the convenience of a one-time payment, and potentially benefit from double tax advantages.

A single premium term insurance enjoys double tax benefits as per the sections of the Income Tax 1961. The premium paid towards the policy is tax-exempt under section 80C of the Income Tax Act. Also, the maturity proceeds are exempt from tax under section 10(10D) of the Income Tax Act.

Here are the major conditions for tax exemption for a single premium term insurance:

• The maximum amount valid for tax exemption under 80C is 1.5 lac. Hence the premium paid only up to this amount can be tax exempted. 

• The tax exemption for premium is valid only when the premium is less than 10% of the sum assured. In the case of a single premium term insurance plan wherein the premium is more than 10% of the sum assured, the tax exemption would be applicable only for 10% of the sum assured. 

• The maturity proceeds are tax-free under section 10 (10D) only up to an amount that is ten times the premium paid towards the single premium term insurance. However, a TDS of 1% is applicable here.

• The death benefit is entirely tax-free.

• If you surrender the single premium term insurance policy, the proceeds are tax-free only if you've completed two years of the policy term. 

• If you surrender the policy before completing two years, the tax exemption provided previously would be considered as income, and then you are required to pay the applicable tax. 

A single premium term plan has benefits, but it's essential to understand if your requirements align with those benefits. It is a perfect choice for people with a lump sum amount available who wish to avoid making a long-term commitment. It is crucial to understand the terms and benefits of the single premium term insurance and assess its suitability for your future goals.