Life Insurance Single-premium Policies: Pros and Cons

The launch of single - premium traditional LIFE insurance plan by public sector giant Life Insurance Corporation of India (LIC of India) has once brought single - premium plans into focus.

Should you buy their argument? The answer to that question would depend on a careful assessment of pros &cons of these plans, probable returns & their suitability. This is applicable not only to the product being sold by LIC of India. But, also by other companies.

Pros..

* The obvious advantage is of one-time commitment -once you have paid the insurance premium, you need not worry about policy getting lapsed due to missed premium payments.

* If you have made a windfall profit from say a sale of property or have earned a bonus, you can look at making the premium payment at one go.

* It would also be ideal for those with seasonal (Diwali /Pongal) or /  irregular income streams, who may find it difficult to make recurring annual payments.

* Moreover, the ceiling on this single - premium traditional LIFE insurance commission paid to agents is 2 % in single -premium policies, which means that a larger share of your premium will be towards the actual investment. You will not have to pay annual fees like policy administration charges either.

Cons..!

* The primary thrust of such single-premium products is investment, rather than insurance, you need to evaluate their return generating capacity, too.

* Most traditional endowment products invest in secured debt instruments such as government securities & offer a return of between 4.5% to 6.5%, with single-premium plans faring a shade better.

*If you are an informed investor, you should consider investing in a tax-free bonds instead and buy a term cover for your protection needs.

* If you are seeking higher returns, you should evaluate other options too, particularly if you have adequate life cover & are looking at single-premium policies only as an investment avenue.

* After all, the life cover needs to be minimum 10 (TEN) times the premium to claim the income tax benefit on the entire amount paid.

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