Benefits of Single Premium Life Insurance and life insurance tax benefits

Have some money lying around idle and don’t want the hassle of regularly paying premiums? Then the single premium life insurance is just the insurance policy you should opt for. As the name suggests, under the single premium life insurance you are required to pay a lump-sum amount of money into the insurance policy in exchange for a death benefit that is valid for the policy tenure. In simple words, it is a “fill it, close it and forget it” kind of policy where once the payment is made, you need not think about it again and fear the lapse of the policy in the event you fail to pay the premium.

What are the benefits of Single Premium Life Insurance?

1. Single Premium

   
   Being the most prominent and most attractive benefit is the fact that you need not pay regular premiums. The single premium life insurance requires you to pay just ONE lump-sum premium initially into the policy, and that’s it! There is no need to reinvest anything into the policy further.

2. Life Insurance Tax Benefits

   
   Under this policy, you are eligible to receive life insurance tax benefits of up to Rs.1.50 lakhs under Section 80C. Further, the sum assured will be tax-free in the hands of the beneficiary at the time of payout. However, you need to keep in mind; that this life insurance tax benefit under the single premium life insurance can be utilized only ONCE in the year of investing since it requires you to pay only a single premium.

3. No Policy Lapse

   
   Usually, under a regular life insurance policy; failure to pay premiums regularly can result in the lapse of your policy irrespective of how many years you may have already paid the premiums for earlier. However, under the single premium life insurance policy; the question of a policy lapse does not come into question since you are required to make only one premium payment up front.

4. Collateral for a Loan

   
   In addition to the life insurance tax benefit, you can also use this lump sum policy amount as collateral for a loan you may wish to avail. When you enter into a single premium life insurance policy, you are creating an asset for yourself, and this can come handy at the time of a loan. Further, the cash value to the policy accumulates every year, building up your asset.

5. 100% Investment

   
   Creating further wealth from your already available asset is what everyone wishes. And you can get this through the single premium life insurance. Your entire policy amount is 100% invested in fund options, such as equity, debt, or hybrid, thereby, building a corpus for your financial future. Most insurance companies allow you to select and choose the funds you wish to invest your money in, thus, providing you with flexibility depending on your risk appetite. Further, you also may have the option to switch between fund options during the policy duration if you are not satisfied with the portfolio’s performance.

6. Life Insurance

   
   Of course, the main benefit that this policy offers you is the life insurance coverage for you. Depending on your age, health and the amount you initially invest; you are likely to receive much more than the amount you had invested! Additionally, not only do you receive peace of mind but also your family is financially protected in the event of any unforeseen circumstance. 

From an insurance company’s perspective, it is preferable for a young, healthy person to invest the money. This is because a person of young age is believed to have a longer remaining life left, giving the invested funds more time to grow before the death benefit is actually paid out. Also, the larger the initial single premium paid, the larger the amount of death benefit your family will be likely to receive.

Most people opt for the single premium life insurance policy when they have a large lump sum amount of money available with them; through some bonus, incentive, inheritance, or some other windfall gains earned in business. If you do not wish to spend this money and worry about the current financial market, then you can opt for this policy.