Deciding on Life insurance is complicated process and once you have decided on the insurance amount, insurance tenure and which company and plan to go for, the last decision to be made is weather you should opt for single premium or Yearly premium payment?
I favour Yearly premium payment over single premium policies because of the following reasons:
For the illustrative purpose I have taken example of LIC Amulya Jeevan – a term life insurance plan.
Following are the details:
Total premium paid in 35 Years (in case of Yearly Premium) = 38,800 X 35 = 13,58,000
So the above calculation shows that you would end up paying Rs. 13.6 lakh if you choose Yearly premium payment while you would only pay Rs. 5.6 Lakh in case you opt for single premium.
A discount of approximately 60% over Yearly premium payment.
So is Single premium payment is what your should opt for?
Probably No!
Here are Six steps how you can utilize your single premium amount of Rs. 5,58,700 in a better way.
To conclude, you should always do your calculation when you need to decide on the Single Vs Yearly Premium payment for Life Insurance and in most of the cases the above strategy of opting for yearly premium payment over single premium payment plan should work for you.
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Also, we wont get TAX benefit for the amount over and above Rs. 1 lakh u/s 80c. for the above premium of Rs. 5.6 L, you end up losing TAX benefit worth Rs. 46000 (assuming just 10% IT bracket) or Rs. 1,36,472 over 35 years (assuming worst case scenario - your income doesn't reach the 20% bracket)