Kathmandu. Life insurance companies provide cash compensation for losses incurred under their insurance plans. In return, you have to pay a specified amount as premium to the insurer.
You may have to pay regular premium installments over a specified period. Such periodic payment insurance plans are called regular premium payment insurance plans. Apart from this, you can also choose the single premium payment option and pay the entire amount as a lump sum (fixed deposit).
Both options have their advantages and disadvantages. If you are unsure about the suitability of single premium and regular premium plans for your needs, you can compare and decide based on the following.
##
## ##Affordable: How do you plan to pay?
##
## The deciding factor when buying insurance is often whether the premium fits within your savings capacity. So the choice between single premium and regular premium plans depends on your income and savings sources.
##
## Do you have a large amount lying idle in a low-interest savings account? Or you may have enough money to invest. You can use it to purchase a life insurance plan by paying a lump sum upfront. Such payment methods can also offer attractive discounts, which can reduce your total premium costs.
The total premium amount you pay over time with regular premiums may be more than the amount for a single premium. However, each premium installment is only a very small fraction of the amount required for a single premium plan. So if you are a salaried employee with a regular income, the regular payment mode may be suitable for your investment. So the issue of which plan to choose may vary from person to person.
Convenience: Can you afford the amount?
If you are self-employed or an independent person, your income may be different from that of a salaried employee. Therefore, you may not be able to determine your ability to pay regular premiums on time. In that case, when you receive the amount, you can choose a single premium plan to secure your family’s financial future.
If you decide to pay a single lump sum, it would be wise to think carefully about when and for what purpose you may need a large amount of money in the short or long term before deciding on a single lump sum payment. If you have a situation where you need to raise a large amount of money in the near future, a regular payment plan can be convenient.
On the other hand, regular premium payments can be a hassle to remember the payment dates. If you miss your premium payment on time, your insurance policy may not be activated. Paying the entire premium at once helps you stay free from such problems.
##
## ##Risks: How do capital markets affect your investments?
##
## The returns from life insurance plans that combine life insurance with capital market investments depend on the performance of the market. A one-time investment with such plans exposes you to market volatility. However, regular premium payments can benefit from the average cost of shares over different market conditions. When the market slows, the price of shares falls. This increases the number of shares you can buy for the same premium, which increases your total holdings. And, when the market recovers, the higher volume of shares you hold increases the value of your investment. Therefore, between single premium and regular premium payment methods, the latter protects you from the fluctuations in the capital market.
Tax Benefits: Can you reduce your taxable income?
## Life insurance premiums make you eligible for tax exemption under the Income Tax Act, 2058. In each financial year, you can claim a deduction from your taxable income up to Rs. 40,000 paid as premium. In single premium insurance, you can claim this benefit only once for the year in which you take out insurance. In a regular premium payment policy, you can deduct up to Rs 40,000 from the amount paid as premium during the assessment of income tax in each financial year during the insurance period and avail tax exemption while calculating taxable income.
##
## ##Additional features: Can you expand your life insurance exposure?
##
## With regular premium payment policies, you can increase your financial risk-bearing limit with additional features (riders). Even a small amount in your premium provides the facility of additional payments of double to triple your basic sum assured.
##
## ##For example
##
## ##Accidental Death Benefit:## Provides additional payments in case of fatal accidents.
##
## ##Critical Illness Benefit:## Pays a lump sum on diagnosis (identification) of health conditions covered under this benefit.
However, such benefits may not be available in a single premium plan. Also, regular premium plans often provide premium waiver for permanent disability. The insurer bears all future premiums itself. Your life risk bearing remains intact until the end of your policy term. However, in a single premium plan, you have already paid all the premiums. Therefore, you cannot get any additional benefits related to premium waiver in such unforeseen events.
The choice between single premium or regular premium payment options depends on your budget, savings, future needs, convenience, tax planning and the benefits you want from your insurance. Either way, both types of life insurance protect your loved ones from financial insecurity due to unforeseen events. Therefore, no matter which payment mode you choose, the main thing is to stay within the protection of life insurance.
