When you begin planning your investment options for your financial future, you have to choose from, many investment products, keeping in mind your financial goal and your risk appetite.Today’s insurance markets have various investment options while considering the various types of short-term and long-term requirements and the risk-bearing attitude of investors.
Choosing and insurance options are not just about selecting which term plan or insurance provider you want; you also have to evaluate whether you want a regular premium plan or a single premium Term plan.
What is the difference between a single premium plan and a regular premium term plan?
When we mention insurance plans, the first thought that comes to an individual’s mind is that they will have to pay periodic premiums either monthly, quarterly or annually. If the policyholder dies during the policy term, then the nominee will become eligible to receive a death benefit equal to the sum assured by the insurance provider. The majority of investors don’t know that they also can opt for a single premium plan; they have to pay the lump sum amount of the premium at the beginning of the policy to avoid the periodic payments at regular intervals.
That way also they will get a life cover till the end of the policy term. Individuals who do not have a steady inflow of cash like salary prefer this single premium plan over regular premium plans.
Who can buy a single premium plan?
Single premium plans do not have any special eligibility parameters. The only requirement is that one needs to be within the minimum and the maximum age bracket specified under the policy to buy the particular premium insurance plan.
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Factors to consider while buying a single premium plan?
1. Income Source
If one is an individual with an irregular or unpredictable flow of income, there will be an uncertainty about their ability to make a regular payment towards their insurance policy. A single premium plan is an investment avenue for such an individual who does not have a constant income stream like a salaried individual. They prefer one-time payment of an accumulated lump sum small regular amounts.
2. Type of single premium plans
Just like a regular insurance plan single premium plan also fulfills the dual purpose of investment and insurance. These are unit-linked insurance plans that allow an individual to invest their single premium amount in debt or balanced funds of their choice. Once the policy measures, the policyholder gets the investor’s fund value depending on the value of the funds he has invested in. Suppose the policyholder dies during the policy term. In that case, the nominee will be entitled to receive either the sum assured in the form of a death benefit of the fund value (or both if such is mentioned in the term policy). Hence, investors always advise investors to evaluate a different kind of single premium plants available in the market before choosing the plant that makes their individual financial goals and needs.
3. Cost of the plan
While single premium plans avoid the hassle of making regular payment of premium, one should also keep in mind that a single premium plan will always be more costly than any regular premium plans. You will not be able to calculate that in absolute terms. Still, if you consider the inflation factor, then the lump sum amount that you pay while purchasing the policy will be higher than the total amount you invest in a Regular plan over the years. Therefore, before choosing the type of plan for yourself, you should consider the cost of a regular plan compared to a single premium plan.