What is Single Premium Insurance Policy and Tax Benefits

September 16, 2021

Life insurance does not always mean that one has to keep paying the premium monthly, Quarterly, half Yearly or Yearly. There are single premium life insurance (SPLI) policies as well, which provide alike benefits of protection and savings as the regular premium ones. The term of Single premium life insurance is usually 10 years, but one can exit after five years.
However, as a single life premium insurance policyholder, you will be getting the various tax benefits

Being a life insurance policy, Single premium life insurance also qualifies for tax benefits, both under Section 80C and under Section 10 (10D). However, it is necessary to be very careful while buying such policies. The tax benefits hold true only under some conditions.

When you pay the entire premium in one go, it is known as single premium payment. There is also an option of single premiums term insurance. In addition to this, there is another category, which is limited pay insurance plan, where you can pay the amount for a specific period of time like five years, ten years or seven years , as per the plan

Life insurance is an important investment that you make to feel secure financially at a later stage in life. It involves payment of a specific amount, which is paid for the contract known as a premium. In return, the company pays a specific amount in the case of death or sometimes, at the time of maturity of the policy. Usually, in an insurance plan, the payment tenure is the same as the policy’s duration. However, there are various options that one needs to consider before heshe selects a premium payment plan.

Single Premium Insurance Policy Tax Benefits

The premium paid in case of a life insurance plans are eligible for a tax deduction, as per Section 80C of the Income Tax Act. This amount has a maximum limit of 1.5 lakh. Moreover ,the maturity benefits remain to be exempted from tax under Section 10 (10D) of the Act. Single premium term insurance qualify for the same benefits. However, not every policy offers the same benefit that the regular life insurance plan avails. Hence, one should be careful while choosing the plan.

The exemption from tax is valid only if the premium is less than 10% of the total sum assured. It is applicable to single premium plans. In case of death, the proceeds are to be tax free.

The Sum Assured

In a life insurance policy, the company determines the minimum, as well as, the maximum sum assured limit. The minimum amount insured happens to be 1.25 times the amount of the single premium and the maximum sum insured is 10 times the single premium. 

Policyholders usually choose a low sum assured because if they choose a higher sum assured, the mortality charge will be high. Investing in a unit-linked insurance plan, the mortality charge will increase and a lesser amount is invested in financial instruments so as to earn returns.

Tax Implications

The policy has a minimum stay period of 2 years. This means that if cancelled before this duration, the previously allowed tax deduction would be considered as income and the policy holder will have to pay the applicable taxes.

It is very important to understand the tax benefits of these single premium life insurances before making a decision. You need to plan keeping in mind your present scenario, tenure and sum assured while buying online life insurance policy.

When you are buying single plan life insurance, it is also necessary to keep in mind the right amount of life cover, especially if you take tax benefits.

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