Single-premium Term Plans – How They Work


A term plan is a basic life insurance policy. It provides a substantial life cover to the policyholder at an affordable premium and ensures his or her family’s financial security in the case of any untoward event. Here, the policy’s nominees receive a pre-set sum assured upon the untimely demise of the policyholder. 

Term plans do not have any investment component and do not offer any survival benefits if the policyholder outlives the policy duration.  While investing in an online term policy, you will get an option to pay the premiums at monthly, quarterly, or yearly intervals. Additionally, you have the facility to pay the premium in a one-time lump sum.  Now when you know what is term insurance plan, let us talk about its single premium payment offering. 

Why and who should consider investing in a single premium term plan?

It is advisable for business owners and freelance consultants to opt for a single premium term plan, as their income is not fixed every month. Their income keeps on fluctuating, and there is no certainty of them making timely premium payments. When they have a surplus of funds at any given point in time, they can consider investing in a term plan by paying the premium as a lump sum. Such a plan comes at a higher cost compared to a regular premium payment term plan.  

Advantages of investing in a single premium term plan

Here are a few plus points of buying a single premium term plan: 

  • No hassles of renewing the policy

When you invest in such a plan, you need not worry about the due date to pay the premiums at periodic intervals. So, you do not need to have a large balance in your bank account for premium payments. By investing in this plan, there are no chances of a policy lapse due to the non-payment of the premium on the due date. If your policy gets lapsed, you are jeopardizing your family’s monetary well-being. Once you pay the one-time premium, you can be insured until the policy period. 

  • Peace of mind 

Investing in a term plan ensures the financial protection of your loved ones if something untoward happens with you during the policy duration. When you pay the lump sum, you can lead a stress-free life, knowing that your family is financially protected. If an unfortunate event occurs during the term of the policy, your family members need to file a claim to avail of the death benefit from the insurer. Additionally, you can take a loan against this policy in case of any monetary emergencies. 

  • Tax deductions 

When you invest in term insurance, you can claim tax exemptions under various sections of the Income Tax Act, 1961. The premium that you pay for the plan is tax-exempt up to INR 1.5 lakh as per Section 80C of the Act. Besides this, the death benefit that your dear ones receive is tax-free under Section 10(10D).

As there are numerous insurance companies available in the market, you can be spoilt for choice. Therefore, you can use a term plan calculator to compare the various aspects, such as the premiums and sum assured values of different policies. This tool can help you find suitable policies that can meet your requirements. 

While investing in a term plan, make sure to opt for a large sum assured so that your family can lead a financially independent life even after you are no longer around. A term plan calculator can help you determine the premium that you will need to shell out for the desired sum assured.