Single-Premium Term Insurance: Does It Work For You

As the name suggests, single-premium life insurance requires the payment of a single premium.

Unlike traditional term insurance, which involves regular premium payments, single premium plans require a one-time lump sum payment upfront, ensuring uninterrupted coverage for the entire policy term, which can range from 10 to 30 years.

How It Works

“The policyholder pays a one-time premium at the beginning of the policy. The plan provides coverage for a predetermined term (e.g., 10, 20, 30 years). If the policyholder passes away within the policy term, the sum assured is paid to the nominees. If the policyholder survives the term, there’s no maturity payout (in a typical term plan without return of premium option),” says Rhishabh Garg, head - term insurance, Policybazaar.com.

This format appeals to individuals who prefer simplicity and wish to avoid the hassle of tracking regular payments. “It also mitigates the risk of policy lapses, making it an attractive option for those who can afford the initial outlay. The premium is calculated based on factors such as the policyholder’s age, health, coverage amount, and policy term, with younger and healthier individuals enjoying lower rates,” says Aditya Mall, appointed actuary, Future Generali India Life Insurance.

“One of the key benefits of single-premium term insurance is the convenience of making a one-time payment, which eliminates the hassle of managing regular premium payments. This upfront payment often results in a lower total premium cost compared to paying in installments over the years. However, the single premium payment might not be feasible for all,” says Garg.

For example, a single premium policy with a sum assured of Rs 1 crore and coverage up to 70 years for a 35-year-old male might cost around Rs three lakh upfront. While the initial cost may seem high, it offers benefits such as a guaranteed death payout, tax deductions under Section 80C, and exemptions under Section 10(10D) of the Income Tax Act, 1961, providing peace of mind with no further financial obligations.

What You Should Know

“However, single premium plans come with their drawbacks: the higher initial cost can be a barrier, and unlike traditional policies, they lack the regular savings discipline. Additionally, there are limited refund options once the premium is paid. Overall, single-premium term insurance suits those with sufficient funds who want to secure long-term protection without the burden of ongoing payments. Prospective buyers should weigh these factors carefully against their financial needs and goals,” says Mall.