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Understanding Single Premium Term Plans and Their Tax Benefits

by MoralStory Editorial Team
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Single Premium Term Plans

A term insurance policy is a crucial investment you may make to obtain financial security for your family’s future. It entails the payment of a lump sum, called a premium, in exchange for insurance coverage for a specified duration. In exchange, the insurer pays out a death benefit (sum assured) in the event of the policyholder’s death within the policy period or when the insurance plan reaches its maturity date (if it is a return of premium plan). Therefore, it would be beneficial if you thought about various premium payment choices in this regard. 

Term insurance plans are very flexible regarding how the premiums are paid and how the proceeds are distributed. Out of these, single premium payment is one of the most popular options provided by most insurance companies. Here’s learning more about the same. 

Single Premium Life Insurance Policy: What is it?

A policyholder might choose a single premium term plan if they want to pay the entire premium in one go. This means paying off the whole premium amount for the insurance policy at the outset. Other premium payment options include limited pay insurance plans, where you pay the premium for a certain period, such as five, seven, or ten years, and regular pay insurance plans, where you pay the premium at regular intervals throughout the policy.

What Criteria and Paperwork Are Necessary to Apply for a Single Premium Term Plan?

Single-premium term plans provide your family with financial security against unanticipated life occurrences by offering them financial support in your absence.

The buying procedure is simple and necessitates little paperwork. However, it should be noted that you must pay close attention to the paperwork needed to apply for a term plan. This is because having the necessary paperwork on hand speeds up the process and enhances your chances of having the policy recognized and authorized.

Here are the documents required for a single premium term insurance plan.

  • Identity Proof- This can be any official Government ID proof or document, including the Aadhar Card, PAN Card, Passport, Voter ID Card, etc. 
  • Age Proof- Birth or marriage certificates or other official Government IDs may be shown in this regard. 
  • Medical History Proof- This entails providing any earlier medical documents and records. 
  • Address Proof- This is any Government ID with an address, including Aadhar Card, Voter ID Card, Passport, or even other documents like water bills, electricity bills, and so on. 
  • Income Proof- The last six months’ bank statements may be furnished, or you may also provide salary slips for three months in this case. 

Term Insurance Tax Benefit from Single Premium Life Insurance

Section 80(80C) of the Income Tax Act of 1961 allows premium payments for life insurance plans to qualify as a tax deduction. It allows a deduction of up to 1.5 lakhs for a single premium policy and is one of the most well-known tax benefits accessible to policyholders. 

A single premium term insurance policy’s death and maturity benefits are exempt under Section 10 (10D) of the Act. Thus, single-premium term insurance is also eligible for these advantages. Not every policy, though, will be eligible for this exemption, so financial consultants constantly advise selecting the plan carefully. Let us discuss this in further detail.

Conditions for Tax Exemption under Section 10 (10D)

The tax exemption on single premium term insurance under Section 10D is available for life insurance policies issued after April 1, 2012, only when the premium paid is less than 10% of the total sum assured. It also applies to a single premium term plan. The proceeds from the maturity of a one-time premium term plan are tax-free if the minimum sum promised under the policy is ten times the single premium amount paid. TDS (Tax Deduction at Source) of 1% will also apply here. Furthermore, the proceeds from a death claim will be tax-free.

What is the sum assured offered?

The company will choose the minimum and maximum sum assured limits for a one-time premium term plan. Typically, the lowest and maximum insured amounts are 1.25 and nearly 10 times for the single premium amount.

Tax Implications of Policy Surrender

Surrendering a life insurance policy entails canceling it before the deadline and getting any benefits that are still in effect as of the surrender date. For example, surrendering the policy would imply terminating a 30-year plan after only the first ten years and claiming any benefits before the entire tenure is completed. The surrender value is the money you receive after relinquishing the plan. The tax regulations for surrendering your insurance plan are determined by your type of insurance plan.
To determine your future goals and then make a selection, it is essential to comprehend what a single premium term insurance plan is and its tax advantages. As a result, you should consider the duration and sum assured when buying any such policy. You should also plan according to the current situation to gain maximum term insurance tax benefits.

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