How to Choose between Single and Regular Premium ULIPs

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If you are searching for a life insurance policy with added benefits, consider purchasing a Unit- Linked Insurance Plan (ULIP). If you are asking yourself, “why should I invest in ULIP?”, the most straightforward answer is that the policy provides extensive financial security. ULIPs combine two benefits, life insurance and wealth build-up. 

In ULIPs, insurance companies invest part of your in equity, debt, or in both types of funds, depending on your requirements. ULIPs can potentially offer you high returns over an extended period, enabling you to create a substantial fortune.

Before you buy the policy, there are a few things to decide. You have to first determine its cost, including the fund management and mortality charges in ULIP. Then, you have to take a call on how to allocate your capital into different ULIP funds and the tenure. Finally, you need to choose from single and regular premium payment options. Here, we aim to help you with this decision.

What is a single-premium ULIP?

A single-premium ULIP is where the insurer lets you pay the cost at once as a lump sum. You can pay the premium at policy initiation and enjoy its benefit for the entire tenure. You do not have to worry about paying a premium again.

What is a regular premium ULIP?

If you do not want to pay the lump sum, the regular premium payment alternative may suit you better. With this type, you can pay the premium periodically over a specific timeframe, which can be as long as the policy tenure. You can choose the payment frequency at your convenience.

You have to select the type of premium payment choice, which is more feasible for you to enjoy considerable ULIP returns. Opting for the suitable choice depends on multiple factors, such as: 

1. Paying it timely

One of the most important aspects of choosing a premium payment frequency is the ability to pay on time. Selecting the regular premium payment option requires you to pay it before the due date. Missing payments can lead to the discontinuation of the policy. If you are not comfortable with the process, the single-premium option will be more suitable for you. Once you pay the lump sum, there is no need to pay any further premium.   

2. Affordability

With expenses like the premium, mortality charges in ULIP, fund management charges, and other fees, the single-premium option can be costlier. If you have idle money and do not mind paying a large amount, a single-premium option may be more viable. However, if you cannot pay it at once, the regular premium option will be a more flexible choice. 

3. Tax benefits

When you invest in ULIP, the premium that you pay to keep the policy active is tax-deductible under Section 80C of the Income Tax Act, 1961. The tax exemption limit under Section 80C is INR 1.5 lakh per year. The premium payment option you pick affects this tax benefit significantly. If you pay the premium as a lump sum, you will get the tax exemption only once. However, when you choose the regular payment option, you can enjoy the exemption every year as long as you keep paying the premium.   

4. Risk factor

ULIP returns depend on the financial market’s performance. Hence, when you choose the regular premium payment mode, its cost is distributed over the policy duration, averaging the good and bad phases of the market. With the spread-out risk, the regular premium option is safer. Conversely, the single premium option is risker, as you do not have the luxury of averaging the risk factor. 

Both premium payment options have their advantages and disadvantages. Keeping them in mind will help you decide which premium payment method is better for you.