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Wondering Single or Regular Premium for ULIP? Halt and Read!

Sep 09, 2019 | 9 months ago | Read Time: 3 minutes | By iKnowledge Team
Wondering Single or Regular Premium for ULIP

A ULIP as against a normal insurance policy provides investors both insurance and investment under the single plan. So, as an investor what should you opt for, single premium or regular premium payment?

What is the Difference?
Lump sum payment at one shot as premium is known as single is known to have a regular premium system. premium. When a ULIP allows the investor to pay premium on a regular basis or periodically then the ULIP investment.

Financial capability of the policyholder, commitment levels, and extra benefits of the policy holder are the factors on which the insured’s choice to opt for regular premium payment or single premium payment will depend.  

The other factors to consider before you as the insured decides on a particular mode of premium payments are as follows:

1. Are You Forgetful? 
If you face difficulty in keeping track of your premium payments, and fear that your ULIP insurance might lapse, then you should go for regular premium payment.   

2. Can You Afford It?
This depends on how much money do you have with you. If you have sufficient funds in your savings account or idle cash that you are wanting to invest, then paying the hefty single premium amount it is justified.  Otherwise stay put and go for regular premium ULIP policy.

3. Earn Tax Benefits
Regular and single premium offer tax benefits under Section 80C.The only difference is single premium will give you one-time benefit whereas regular premium policy will provide tax deduction regularly or on a continual basis. Say for example you have to pay a premium of INR 10,000 for 15 years for an assured sum of INR 2, 00, 000, then you will get tax benefit on one-time premium payment. For regular premium, you will get tax benefit every year on INR 10,000. In case of a single premium policy, you can avail tax benefit on INR 1 lakh (since that is the one time premium you pay for the entire term of 15 years).

4. Risky or Not Risky
The logic behind determining which of two policies, regular or single premium policy is affordable and less risky, you need to know about ‘Rupee Cost Averaging’.  

Rupee Cost Averaging simply means averaging the cost of your investment through irregular market cycles. Why irregular? Because as you must be already aware, market conditions are volatile and not steady due to trading activities and price fluctuations.

If you opt for regular premium payment on your ULIP investment you stand to gain as thisdistributes the cost of regular premium payment over the years and is subject to a wide distribution of favourable and unfavourable market cycles. Therefore, the risk element is spread out. A single premium mode of payment puts you in a tight spot as the risk factor is high.

5. Lastly, How Does the Math Work?
For instance, let us consider that Mr. Anil has ULIP investment for a sum of INR 2, 00, 000 assured for 15 years with an annual premium payment of INR 10,000. This means he is paying INR 1,50,000 for a period of 15 years. He later decides to make a single premium payment of INR 1, 10,000 for the same assured amount. Though it seems that he is earning a savings amount of INR 40,000, you are not taking into consideration the inflation rate at 6%. Thus, the single premium goes up to a value of INR 2, 63,000 for 15 years. This is famously called the ‘time value’ of money, where in the inflation factor is added to the premium amount.  

All said and done, before you decide on which type of ULIP investment, regular or otherwise is beneficial for you, you need to know your financial stability and capability to pay one-shot premium or regular premium. If you are a salaried person, then a regular premium policy makes sense.

If you are planning to opt for a ULIP investment, then consider plans by Aegon Life. ULIP insurance is one of the most important investment decisions of your life. You should take this decision wisely and after due diligence. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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