COMPARATIVE STUDY BFSI
Single-Premium Insurance Policy
Once and for all, but what about the tax saving?
As the term suggests, a single-premium insurance plan is one in which the policy premium is paid only once during the term period of the plan. In other words, such plans provide a life cover on payment of a onetime lump-sum premium amount. How do they work? Is it the perfect plan for you? Are you looking at an insurance plan for protection or for saving you taxes? The singlepremium plan is as good or relevant as your answer.
First things first: the premium that you pay upfront in such policies will be a larger amount. Not just this, if you are looking at your insurance policy as an effective taxsaving tool, you will have to have a higher life cover. If you already have a single-premium plan where the life cover is not 10 times higher than the yearly premium, it will not be eligible for tax benefit under Section 80 C. Thus, you will have to consider changing the yearly premium significantly to get that life cover or opt for an altogether new policy. Further, under Section 10 (10 D), you are entitled to tax-free death/maturity benefits only if the minimum sum assured throughout the policy term remains 10 times the single premium paid.All these details aside, there are several plus points to consider. Not the least is the fact that it’s a one-time thing – the policyholder may pay the premium just once in her life and it’s all done. The thought does have some merit because paying premiums regularly each year calls for discipline. There is always the possibility that the policy will lapse if one keeps missing the dates for paying premium.
Are They Good?
a) For regular payment of premium, you need to have the money in your bank account to keep the policy alive. So, paying the premium just once is easy. b) Many investors buy regular premium-payment policies during the tax-saving season (January to March each year) as a tax saving instrument rather than for protection, which is not what insurance is meant to be. c) For people with fluctuating income, this is possibly one of the best instruments available today. Single premium is simply a mode of payment and comes handy for those with shorter career spans.
d) People who have made some windfall gains or
f) are sitting on a huge investible surplus prefer single-premium plans. e) These plans are suitable for those who do not wish to make recurring payments or fear lapse of the policy. If you have a sizeable amount of money such as bonus or proceeds from sale of property, and want to invest one-time for a particular term, then this plan would suit you.
Are There Limitations/Drawbacks?
told of a host of charges that are loaded on the single-premium policy. So, in a way it acts as a dampener for further investments. loading of charges offset any growth achieved on the policy and thus erode the paid-up value of the policy, generating genuine concerns on the part of investors.
are better gets strengthened when returns are compared. be eligible for tax deductions, you will need to have a policy with a life cover 10 times higher than the annual premium. Thus, you may be required to either change the yearly premium to get that life cover or opt for an altogether new policy. This may cumbersome but not difficult to achieve. For example, if you want to save Rs 30,000 with your policy, you will have to buy a minimum life cover of Rs 300,000.
13 Companies, 13 Products
We chose 13 companies to study their products on parameters such as minimum and maximum premium, minimum and maximum policy term, maximum sum assured, charges for premium allocation and fund management, and claim-settlement ratio. We gave the highest weightage (20 points) to consumer feedback, based on which the most important and beneficial variables were shortlisted. These variables have a direct bearing on the success of the product in the insurance market.
Certain Variables Explained
a single-premium policy allow for ‘surrender value’ after the mandatory five years (lock-in period) from the date of the policy. policy after the completion of ‘lock-in period’. Such partial withdrawals may be a minimum of Rs 1,000 (only on the policyholder reaching the age of 18 years as on the date of exercising such an option) or subject to a minimum balance of, say, Rs 5,000 in the policyholder’s fund value. A small fee is charged as surcharge
for facilitating this partial withdrawal. charge’ to meet the costs of duplicate statement if sought; effectuate a change in name or a change of date of birth; addition of contact numbers; and so on. on premium to increase the sum assured proportionately. opportunities to switch from one fund to another under the same insurance product (for example, from ‘ dividend’ option to ‘ growth’ option, or from ‘equity’ to ‘debt’ option).