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2 mins Read | 2 Years Ago

What is Single Premium Insurance and How It Works


Single Premium Insurance allows you to pay a premium amount for an insurance cover at one-go. Read further to know what the policy is and how it works.

Today, consumers look for the flexibility factor while buying any product or service. This is also valid in case of purchasing an insurance cover. Many insurance companies have come up with some innovations in premium-paying flexibility to encourage consumers to buy an insurance cover. There are people for whom premium frequency is the biggest factor. Paying a single premium seems to be a great option for people who have enough idle savings and want to save tax at the last moment. A Single Premium Insurance focuses on lump sum premium payment in exchange for insurance cover.

Features/Benefits of Single Premium Insurance:

  • It is an ideal payment mode for those who prefer paying a premium at one go and saves you from the inconvenience of keeping track of paying regular premiums
  • If you’re a frequent traveller, Single Premium Life Insurance is the right choice for you
  • You do not need to remember the due date
  • If you’re earning well with enough idle money, you can easily invest in a Single Premium Insurance plan
  • You don’t have to worry about the policy lapse since you pay the full premium upfront.

Tax benefits on Single-Premium Insurance:

You can save tax on premiums under Section 80C of the Income Tax Act. The maturity benefit on Single Premium Life Insurance is entirely tax-free under Section 10 (10D). According to the Insurance and Regulatory Authority of India (IRDA), a taxpayer can avail of not more than 20% of the sum assured.

For example, if you have purchased a life cover of Rs 1,00,000, the premium should not be more than Rs 20,000. In case you are paying Rs 30,000 for the same insurance cover, then you’re eligible to get a tax benefit of 20% on the premium amount. You can claim tax deductions only up to Rs 20,000.

If the premium exceeds 20% of the sum assured, you cannot claim for tax deductions under Section 10 (10D).

How Does It Work?

Let’s understand the insurance policy with the help of an example:

Ketan is 30 years old and buys a Single Premium Life Insurance with a policy term of 10 years. He opts for a cover of Rs 10 lakh for which he pays Rs 1 lakh as an upfront premium. In the case of Ketan’s death, the nominee will receive Rs 10 lakh as lump sum. On the other hand, if the policyholder survives through the term, he gets maturity benefit based on the performance of the investment assets.

Before buying the Single-Premium Insurance, you need to consider the following pointers:

  • Lump sum premium payment is a feasible option only for those who have idle money. Salaried individuals cannot afford one-time investment as it turns out to be expensive
  • You can claim for tax benefit only for the year when you pay the lump sum amount to buy the policy. Unlike Regular Premium Insurance, where you get to claim tax deductions on periodic premium payments, it is not the case with the Single-Premium Insurance
  • Single Premium Insurance is still popular among individuals as it is the last resort for some individuals to save taxes at the end of the financial year.
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