Why is single premium policy gaining popularity?

• Follow

The life insurance business in the country is growing rapidly. In the fiscal year 2023, there has been a 20% increase in the premium collected by life insurance companies. It was 35% in March, 2023. The increase in demand for life insurance policies came mainly towards the end of the fiscal year, with private life insurance companies emerging as winners.

On the other hand, the performance of the public insurance company, LIC, has been quite weak. In March, 2023, there was a 32% decrease in premium collected by the country’s largest life insurance company. Only a 17% increase was recorded in the premium collection for the entire fiscal year 2023. LIC’s share in new business premium has been continuously falling. In the fiscal year 2023, it remained at a low of 63%.

Single premium policy has made a significant contribution to the business of life insurance companies. Those who are associated with seasonal employment or business are opting for this policy. Such people are not aware of whether they will have enough money to pay regular premiums in the future or not, which is why the demand for single premium policy is increasing. The report of Kotak Institutional Equity Research shows that the contribution of single premium in total insurance premium increased to 79% in July 2022, which was 65% a year-ago period.

The statistics of the Life Insurance Council indicate that in the January-March quarter of the year 2023, there has been a record increase in new business revenue of life insurance companies through single premium policies. This year, the popularity of single premium policies has increased. This is because policies with a premium of more than five lakh rupees have been brought under the ambit of tax in the budget.

What are the benefits? In a single premium insurance policy, you do not have to pay premiums at regular intervals. You pay the premium once and get rid of all the hassle. This policy is preferred by people who have a lump sum amount of money. Personal finance expert Jitendra Solanki says that a single premium policy allows you to get life coverage for your entire life by investing a lump sum amount of money. Customers do not have to worry about paying premiums every year for 10-15 years in a policy. The single premium paid is less than the total amount paid in a regular premium policy. So, some savings can also be made with a lump sum investment. Demand for single premium policies has increased since the Coronavirus pandemic.

Who is it right for? The question of whether a regular policy or a single premium policy is better in life insurance is a big one. It is important to consider some important factors here. Single premium policy is a better option for those who are ready to lock in a good amount of money at once and get returns in exchange. Generally, the duration of a single premium policy is less than that of a regular premium policy. This policy is often bought by high-income people.

What are the tax rules? When you make a payment for a single premium policy, you are eligible for a tax deduction under section 80C of the Income Tax Act. You can claim a tax deduction on investments up to a maximum of 1.5 lakh rupees under this section. This benefit is only available once. The amount received on maturity is tax-free under section 10 (10D). However, keep in mind two things on this front – first, the tax exemption for policies issued after April 2012 will only be available if the premium paid in any financial year is not more than 10 percent of the sum assured. Second, for non-ULIP policies purchased after April 1, 2023, if the total premium paid in a year is more than Rs 5 lakh, no tax deduction will be available on its maturity.