When does single pay make sense?

There are three different term insurance premium payment terms: 

• Single pay - You pay all the premiums of your term insurance policy all at once 

• Limited pay - You complete paying the premiums of your term insurance policy within a certain amount of years during your term period. For example: You have a policy period of 20 years and you plan to pay all premiums by the 7th year of your policy

• Regular pay - You pay premiums regularly until the end of your policy

You have the option to choose the premium payment term that you are comfortable with at the time of term insurance application. 

Find out more about various term insurance premium payment terms. 

There is no ‘one-size-fits-all’ approach to this. This will depend entirely on your personal convenience. To decide the number of years you wish to pay premiums for, you need to take into account factors such as your budget, your ability to pay premiums regularly without fail, to avoid a policy lapse etc. 
 

Let’s understand with an example:

Say, you are someone who wants to not risk the chance of policy lapse and not keeping paying premiums on a regular basis. In this case, you could choose single pay (if you’re comfortable with paying a big premium amount at once).

Take the KlarifyLife Term Guide to understand which premium payment term you should choose. 

You can consider choosing a single pay term if you are any of the following: 

• You have irregular income due to your profession (maybe you are a freelancer) 

• You have recently received a huge amount of money (inheritance, stock or ESOP payouts etc)

Also, since you are paying all the premiums at once, you don’t have to worry about your policy going inactive.

You can consider choosing the single payment option. With irregular income, you may face a risk of missing out on payments. And if you do not pay the premiums on time, it will result in a policy lapse. You can always revive your term insurance policy but do you really want to go into that hassle?

Choosing single pay will allow you to pay off all the premiums of your term insurance policy at once and eliminate the risk of your policy going inactive. 

Consider choosing the single pay option. Doing so will allow you to pay off all the premiums of your term insurance policy at one go. You will not only be putting this money to good use, but you can also relax a bit since you will also be eliminating the risk of your policy going inactive if you miss paying premiums on time.

No, this is not true. Single pay can look cheaper than regular pay where premiums are paid throughout the policy period. But don’t forget to consider the value of money over time and inflation. The actual savings may be less than 15%. Let's take an example to understand this better. 

For a policy of ₹ 2 cr life cover with a policy duration of 30 years, the annual regular pay premium is ₹ 23,500 and the single pay premium is ₹ 3,42,000. 

How people may calculate:

• Regular pay premium over the entire policy duration is ₹23,500 x 30 = ₹ 7,05,000

• Savings of single pay over regular pay premiums = ₹ 7,05,000-₹3,42,000 = ₹3,63,000 i.e., savings of 51.5%

This calculation completely ignores inflation. Let's assume inflation is 6.6%, based on the 30-year inflation average in India. 

In that case, the present value of all the regular pay premiums paid is ₹ 3,02,993. This means the value of all the premiums you will pay over the next 30 years is ₹ 3,02,993 today. When you compare this to the single pay premium of ₹ 3,42,000, you are actually paying more in value. 

You should instead choose your premium payment term based on which option you can sustain and not discounts. 

Find out which premium payment term is best for your term policy needs by checking out the Term Guide. 

Yes, you can. The premium payment term that you have chosen has no relation to whether you can buy a rider or not. 
 

You can buy a rider while buying a term plan. You can also buy a rider after buying a term plan, but you can only do so on the policy anniversary (i.e. typically the day when your policy completes a full year). 

Whether you can buy a rider or not depends on whether you are eligible to buy a certain rider. For example, some insurers may not offer you a critical illness rider if you already suffer from a critical illness or you are transgender. 

It depends. 

In regular pay, you get a tax benefit every time you pay your premiums. But the benefit will be proportional to your premium amounts. So, in single pay, you’ll get a bigger tax benefit amount compared to regular pay (since the premiums are smaller amounts in regular pay). 

If you think that your current year’s tax incidence is high, you can choose single pay to reduce your current taxable income. However, tax savings should not be the sole reason for picking one premium payment term over another. 

You should pick a premium payment term that you can easily sustain. 

Yes you can opt for a single pay premium payment term. Due to the nature of your occupation, you may face a high probability of accidents or exposure to hazardous materials that may cause a critical illness. 

This may affect your earning capacity and make it difficult to keep paying premiums to keep your term plan active. To avoid such an issue, you can: 

• Consider choosing a waiver of premium (WOP) rider which will waive your future premiums if you get disabled due to an accident or get diagnosed with a critical illness

• Opt for single pay premium payment term. This will ensure that you don’t need to worry about premium payment since you’ll be paying all your premiums at once.

Whatever aforementioned options you choose should be based on your convenience and cash flow position. 

Pro-tip: Remember to disclose your occupation and its nature to your insurer at the time of policy application.