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Insurance policies can be either single premium or annual premium insurance plans. You should compare the policies from various perspectives such as cost, tax exemptions, and returns. Our analysis of these factors shows that insurance policies with annual premium payments make more sense for your financial planning.
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Insurance is an important part of your financial plan, as it will provide financial security to you and your loved ones and give you financial cover in case of contingencies. There are different ways of paying premium for insurance policies. Single Premium Policy is an insurance plan in which you have to pay one lumpsum amount to buy it. The policy can be either for a specified term or for life. Annual Premium Policy is an insurance plan in which you have to pay premiums once a year to buy it. It can also be for a specified term or for life.
Let’s look at the various features of both the types of policies:
Let’s look at the various features of both the types of policies:
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Costs – Insurance policies have policy allocation charges, administration charges, mortality charges and fund management charges. These are similar in both types of policies. Annual Premium policies may have these costs as a higher percentage of the premium but the mortality charges for a long-term policy reduce every year as the risk reduces each year. Moreover the costs charged at the time of buying single premium policies are higher.
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Flexibility – Annual premium insurance plans are more flexible as in many of them, you can have the option to add riders and top-up the policy.
Hassle Free – Single premium payment policies are thought to be hassle free. Once you pay the premium, you need not remember premium amount and date etc. Some people feel they might not have resources later on to pay the premium. But this is not a great advantage as with a little bit of financial discipline and financial planning, it will not be difficult to manage the premiums. We also do think that it is a good practice to keep the premium amount, date of payment and the sum assured amount recorded.
Returns – According to industry experts, returns on annual premium policies are normally higher than those on single premium policies.
Returns – According to industry experts, returns on annual premium policies are normally higher than those on single premium policies.
Tax exemptions – In a single premium insurance policy, you will get tax exemption only in the year you pay the premium but in the case of annual premium insurance policy, you will get tax exemption every year.
On the whole, we think that opting for an annual premium payment policy is better for your financial planning.
On the whole, we think that opting for an annual premium payment policy is better for your financial planning.
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