Lump-sum or regular premiums – what is the right way to pay insurance policy premium?
Regardless of which life insurance policy you pick nowadays, you have plenty of options to choose from, starting from various riders, policy tenure to the insurance coverage amount. Along with these, one of the trickiest choice that you need to make while buying life insurance is the frequency of premium payment.
You can either choose to pay a single premium or make regular payments. In the case of single premium, you will have to pay the premium amount upfront. So, if you opt for a policy having a term of 10 years, then you need to pay the premium at one go. While, a regular premium is a preferred option wherein you plan the instalments annually, half-yearly, quarterly and monthly based on your convenience.
Once you shortlist the policy, you have to choose the suitable policy term for yourself, and then you need to decide whether you want to go with a single premium or regular instalments. As you increase the number of instalments, you tend to pay more. This is because the insurance provider permits you to pay the premiums in instalments.
However, there are a couple of factors that you should consider before settling on the choice of paying single premiums or pay in regular instalments. Below are the details of those factors, read through to know about them.
Insurance Cost: The cost of purchasing a life insurance policy could be one of the primary deciding factors for many people. A single premium payment mode is less expensive than the regular premium mode. Let us take an example to understand this:
Mr A and Mr B decided to purchase the same insurance policy with different premium payment frequencies. Mr A decides to pay a yearly instalment of Rs. 15,000 for 15 years and ends up paying Rs. 2,25,000 over the whole term of the policy. Whereas Mr B selects to pay a single premium and ends up paying Rs 1,75,000, saving Rs 50,000 at one go. In this way, Mr A pays more money than Mr B for the same policy having the same duration.
Convenience: Convenience is the main highlighting aspect of the single premium payment. You just need to fill the necessary forms and pay the premium amount at one go and relax for the rest of the policy tenure.
Affordability: From the above example, it can be said that single premiums nevertheless help in saving more, but it is clearly not affordable and viable for many people. In this manner, it may be far off for most salaried people or even for people belonging to the middle-class category. Unless you have sufficient money available with or you are ready to withdraw your savings, it can be really difficult to afford single premiums.
On the other hand, in terms of affordability, paying premiums at regular intervals like annually, half-yearly, quarterly, and monthly is more convenient. Based on your responsibilities and liabilities, you can select your frequency of paying premium regularly. If you think you can’t afford to pay yearly, then you can probably opt for monthly payments, half-yearly or quarterly. Therefore, accordingly, you can pick an instalment mode that suits you.
Risk factor: Life Insurance products are usually for a long duration. Therefore, a lump-sum payment might not be the best option for you. Because, if there might be some fluctuations in the capital market, then you are inclined to certain risks. In this way, regular instalments keep you safe from those risks and give you the advantage of rupee cost averaging, which is quite crucial while saving from those risks.
Tax benefit: Tax benefit is yet another reason that people invest in life insurance policies. The premiums of almost all life insurance policies are eligible for tax exemptions under Section 80C. You can benefit as much as Rs 1.5 lakhs under this provision. Therefore, a single premium amount probably will not be the best option if you want to enjoy the tax benefit. But if you choose to pay premiums at regular frequencies, then you can avail the tax benefits on every premium paid every year.
Indeed, the premiums of life insurance policy can be paid either as a single amount or in instalments at regular intervals. But it would be best if you keep in mind the above factors such as affordability, tax benefit, risks, etc. while selecting the premium payment mode. In any case, it depends on you, how much can you afford. If you have enough liquid money and can afford then the single premium is a good option else, you have a choice of paying premiums at regular intervals. If you want to know which premium payment mode will be feasible for you, then you can visit BimaKaro.in, get free quotes for different term life insurance policies and decide which premium payment mode will be suitable for you.