Finance

Single Premium Vs Regular Premium ULIPs: Which One Should You Buy?

3 Mins read

Unit Linked Insurance Plan (ULIP) is the go-to choice for several individuals when it comes to life insurance. It has a unique structure that comprises a combination of life insurance and investment. Similar to life insurance, you are required to pay a premium after opting for a ULIP. However, it is allocated differently. Your premium is partly used for providing you with a life cover and partly invested in funds of your choice. You can pay the premiums in two ways, either with a single premium or a regular premium. The single premium is when you pay a lump sum for your ULIP. While a regular premium option is when you have to pay recurring premiums.

Single Premium or Regular Premium: Which ULIP Should you Choose?

What to choose: Single premium or regular premium plan?

You can choose your premium plan while buying a ULIP, be it a single plan or a regular one. A single plan simply offers you the policy with a single instalment. A regular plan is when you have to make recurring payments. You can choose the frequency of your payments, be it monthly, half-yearly, or annually. If you are contemplating the type of premium you should choose for your ULIP plan, here are some factors that will help you differentiate between the two:

Convenience

A single premium ULIP is much more convenient than a regular premium plan as you just have to pay once for it and not worry about any future payments. Once the premium amount is made in a single premium plan, the policyholder does not have to worry about any payments or arranging money for premiums. When it comes to a regular premium plan, ensure that you have sufficient funds to pay premiums on time. You can also choose automated systems, but ensure that you pay premiums on time. This is because missing premiums may lead to your policy lapsing altogether.

Amount of premium

ULIP is a life insurance policy along with a long-term investment plan. When you buy a single premium policy through a ULIP, your premium is likely to be high, since it is a one-time amount. When you choose a regular premium plan, the premiums are low, since you have to pay in parts rather than one enormous sum. You can use a ULIP plan calculator to calculate your premium and choose your sum assured accordingly.

Maximising returns

Single-Premium ULIP does have the maximum potential return, as there are no chances of funds being discontinued. In a regular ULIP, a shortage of funds anytime during the policy may lead to a discontinuation of it. The discontinuation of funds will directly impact the returns.

Affordability

Your financial planning is impacted when you have to pay premiums for your ULIP. If you choose to pay a lump sum amount at one time, it might take a toll on your finances for that specific year. A single premium of sufficient financial cover will be expensive. Whereas, if you are paying regular premiums for the same amount, the premiums may not feel so hefty. In both ways, you will be getting the same ULIP benefits.

Benefits on taxation

Under Section 80C of the Indian Income Tax Act, the policyholder can avail of the tax benefit of up to ₹1,50,000 on the annual premium paid for a life insurance policy. Section 80C is applicable in the same manner for both single premium policy and regular premium policy. When you pay a premium, you can avail deduction for that financial year specifically. Hence, in a single premium policy, you can claim the deduction under Section 80C only once. While with a regular premium plan, it is every year that you pay the premiums. You can use a ULIP calculator to estimate your premium amount and its tax implication.

Risk associated

ULIP is life insurance and investment in a single plan. When you are investing in any financial instrument, your risk appetite is affected. A ULIP benefits the policyholder, as they can switch their fund allocation anytime they want. This allows them to shift their funds based on their risk appetite, from debt to equity and vice versa. When you pay a single premium of a large sum, you are likely to face extreme market conditions as compared to regular premiums. The reason is that in regular payment of premiums, rupee cost averaging is taken into consideration. Rupee cost averaging allows you to buy more units of your funds when the market is low and fewer units when the market is high, to maximise your profits.

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