When you plan to buy a Term Insurance plan, the first thing that comes to your mind is what should be the frequency of premium payment. Most insurance companies would offer you choice of making a single payment or regular payment until the tenure of the policy.
The answer lies with you. Mathematically, there would not be much to choose because the single premium would be discounted value of all future premiums assuming a certain interest rate.
To understand let us take an example:
You are 30 year old male looking for Rs. 50 lacs of insurance to cover your loan. You have taken the loan for the leading bank in the city for 15 years. The bank officer is authorised to sell insurance, so he presents following options to you.
|Single premium Rs.50lacs overage||Regular premium Rs.50lacs coverage|
|Rs.64,569 payable upfront lump sum||Rs.7151.00 per annum for 15 years, total premium payable during the term is Rs. 1,07,265|
Factors to consider when choosing the premium payment option.
Level of savings
If your savings are regular you would find a regular premium paying more appealing. However, if your savings are adhoc or irregular in nature you may prefer to pay once and get rid of any future botheration.
If you are one of those who manage all payment on time, i.e. you do not miss on credit card payment or your insurance premium, regular premium would be ideal.
Like most life insurance plans, term insurance would provide a grace period to pay the premium. Should you miss this grace period also, reinstatement of term plan would be cumbersome process. So if, you are bit lazy on your finances single premium would be worth considering.
Your Investment profile
As discussed above, single premium is discounted value of future regular premiums. Insurance companies are normally conservative when using the discount rate. Therefore, if you are aggressive investor and feel you can generate better returns than discount rates used by Insurance companies. You may find single premium option less attractive.
Additional Benefits or riders such as critical illness, accidental death, waiver of premium, hospital cash benefit etc. may be restricted in single premium option. If you are looking for comprehensive protection regular premium option would be better bet for you.
Most people feel that term plan do not provide any surrender benefit. This is true for regular premium term insurance. However, it is worth knowing that in case of single premium term policy the plan could be surrendered for cash value. Some circumstances in which it may be required is when you have repaid your loan early.So, if you are deciding between a single and regular premium options, do consider the factors discussed above. Make some simple calculations for yourself, if you are still confused it is time to call us.