COM­PAR­A­TIVE STUDY BFSI

Sin­gle-Pre­mium In­sur­ance Pol­icy

Consumer Voice - - Contents - Subas Ti­wari & Gopal Ravi Ku­mar

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).

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