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Single Premium vs. Regular Premium ULIP Plans: Which one should you buy?

Single Premium vs. Regular Premium ULIP Plans: Which one should you buy?
November 21, 2022

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Unit Linked Insurance Plans or ULIPs offer a good balance between investment and insurance, giving investors many benefits that come with the duality of the plan. Primarily, those investors who sign up for ULIPs (Unit Linked Insurance Plans) are ones who want to remain with their investments for the long term, and want life cover as well.

The many aspects related to ULIPs include single premium vs. regular premium ULIPs. When you buy insurance, such as in a ULIP, your plan will offer you financial compensation for any losses that your plan covers. Furthermore to buy and to maintain your insurance cover, you have to pay your insurer a premium. This is usually paid out once a year and keeps your insurance policy active. This is a regular premium which you pay your insurer. In some insurance plans, policyholders have the option to pay all the premiums as a lump sum at one time. This is the option of single premium payment. Whatever option you choose depends on you, but you should know what both entail.

Single Premium vs. Regular Premium ULIP Plans: Which one should you buy?

If you are in a quandary about which option to select, you should weigh the pros and cons of both according to certain factors. Ultimately, what is suitable depends purely on you as an investor. In the single premium option, any investor gets total coverage by the insurance plan when they pay the premium at the start, in a lump sum. There are many reasons to opt for one or the other option, and this could be tied to your ability to pay premiums and the unique ULIPs you opt for.

Why are investors opting for single premium ULIP plans?

ULIP plans are a popular way to grow wealth and get life insurance under one roof. There could be reasons for investors selecting the single premium vs. regular premium in any ULIP. As the investment markets go, there are many investors who prefer investing with lump sum amounts, as they do with regular mutual funds. Such investors dominate the investment market. In case investors have surplus capital lying around, and many do, they would rather invest it all at one go. The insurance cover while opting for single premium plans may be better, with more advantages, than those offered with regular premiums. Furthermore, there are more benefits to be had as a lump sum payment may mean that you pay less of a premium going forward.

The Positives and Drawbacks of Single and Regular Premium ULIP Plans

When you learn about the benefits and drawbacks of single premium and regular premium in ULIPs, you will be able to make an informed choice as to which might suit you, as a potential investor in ULIPs. Here are the positives and drawbacks, based on aspects of plans, highlighted below:

  • The Factor of Affordability

    Generally, the factor that determines your decision in the purchase of any insurance plan is whether premiums are aligned with your budget. Therefore, the selection between the single premiums and the regular premium in plans is dependent on the resources at your disposal.

    If you have capital to spare, a lump sum payment gets you a host of benefits when you pay your premium at one time. You get appealing discounts on the total premium paid. However, if you choose the route of regular premium payouts, the entire sum that you may pay could work out to more than the lump sum paid. Nonetheless, the regular payment mode would suit salaried individuals with income that is available on a regular basis.

  • The Factor of Convenience

    While deciding between the single premiums and regular premium, you must consider your convenience while making payments. If you believe you may not be able to make timely premium payments, you may opt for a single lump sum premium payment. However, if you do not have funds to spare for a lump sum, you can think of regular premiums.

  • The Risk Factor

    ULIPs blend life insurance with investments in one plan. The investment portion of the plan may be based on market securities. In case you make a single premium payment, you could be at risk of volatility in the markets. However, if you choose to make regular payments, you get the advantage of averaging share costs in varying market scenarios.

  • The Taxation Factor

    You can get tax rebates when you pay life insurance premiums. Under Section 80C of the Income Tax Act*, you are eligible to get deductions up to Rs. 1.5 lakh of premiums paid. This can benefit you with regular premiums paid, but not with a single lump sum as the deduction will happen only once, and on a larger sum.

  • Extended Advantages

    If you have to choose between single premiums and regular premium payment, you should consider that regular premium options give you the opportunity to get add-ons tied to your original policy. This means that, for an additional amount, your cover can be extended to broaden its scope. For instance, for a nominal amount added to your original premium, you may opt for critical illness coverage in your plan.

Illustration of Fund Value Comparison in Single Premium vs. Regular Premium ULIP Plans

A comparison of fund values at maturity cannot be made between single premiums and regular premium ULIP plans. This is because of the fact that the single premium plan simply grows based on the initial lump sum invested. With regular premium plans, there is a repetitive inflow of investment. Therefore, with ULIP plans, the premium may be the same with both modes of premium payment, but the maturity values will differ. You can see this from the table below, illustrating the premiums paid in both modes for a ULIP from HDFC Life Click2Invest ULIP:

The above amounts are applicable for a tenure of 8 years**.

Regular Premium ULIP Plans are Value for Money during the Uncertain Demise of the Policyholder

With any investment plan and combined life insurance policy, value for money is important to the policyholder. As a result, when you compare single premium vs. regular premium ULIP plans, you will discover that paying regular premiums benefits policyholders in the event of the unforeseen demise of the policyholder before the policy reaches its maturity. In such cases, any remaining premiums need not be paid.

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ARN - ED/09/22/29669

* as per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws. You should consult your own financial /tax or accounting consultant for any tax related queries.

**Some benefits are guaranteed and some benefits are variable with returns based on the future performance of your insurer carrying on life insurance business. If your policy offers guaranteed benefits then these will be clearly marked "guaranteed" in the illustration table on this page. If your policy offers variable benefits then the illustrations on this page will show two different rates of assumed future investment returns. These assumed rates of return are not guaranteed and they are not the upper or lower limits of what you might get back, as the value of your policy is dependent on a number of factors including actual future investment performance

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

HDFC Life Click 2 Invest - ULIP (Form No. P501-127 UIN: 101L100V03) is a unit linked non participating life insurance plan. Life Insurance Coverage is available in this product. For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, HDFC Life Click 2 Invest - ULIP (Form No. P501-127 UIN: 101L100V03) is only the name of the unit linked life insurance contract. The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns.

Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.