Having term insurance or a single term insurance policy is important because of life’s uncertainties. Whether you are around your loved ones or not, having insurance to solidify their future can bring relief.
Insurance is not just for the policyholder’s untimely death but also for their retirement. Term insurance and single-premium insurance are great options if you are looking for a retirement fund.
However, it is important to know the difference between these two, and this article can give you useful insight into which one to choose.
What is a Term Insurance?
Term Insurance is a life insurance product that protects for a definite period. If the policyholder dies during the policy’s term, the nominee is entitled to the entire amount available, called the death benefit.
It ensures your family’s financial stability in case of your untimely demise. It is very famous among people who have financial responsibilities because it offers high coverage at affordable premiums.
What is a Single Premium Term Insurance?
In single premium term insurance, the entire premium is payable at one time when you start this policy term at your preferred time. While regular term insurance requires periodic premiums to cover the risk, this product guarantees to cover the risk for a specified period without bothering the policyholder by demanding periodic payments.
This product would be very suitable for people who have a lump sum amount to invest and would like to opt for a one-time payment rather than regular outflows.
Difference Between Term Insurance and Single Premium Term Insurance
Simply put, term and single-premium term insurance are designed to give financial protection for a specified term. Still, they differ considerably regarding premium payment and some other features.
| Basis | Term Insurance | Single Premium Term Insurance |
| Premium Payment | In regular-term insurance, you pay the premium amount periodically throughout the policy term. | In the case of single-premium term insurance, a one-time lump sum must be paid at the time of policy inception. |
| Policy Term | Term insurance generally allows more options when choosing the policy term. | A single premium is bound to have a few limited term options. |
| Cost | Regular term insurance is generally more cost-effective since the premium is spread over several years. | Single-premium term insurance may have slightly higher premiums due to the lump sum payment. |
| Regular Term Insurance | A regular term insurance offers scope for better financial planning because you can adjust your coverage based on changing needs. | In the case of single premium term insurance, since you are paying the whole amount at a time, it can be heavy on the pocket. |
Advantages of Term Insurance
Term insurance has various benefits for the consumer. The first and most prominent one is that it’s more affordable than most life insurance policies, making it more available to a greater number of people.
- High Coverage: It provides coverage at a relatively low premium and safeguards the dependents against untimely death.
- Tenure Flexibility: It offers the facility for choosing the policy’s tenure according to one’s needs and financial position; hence, it is customisable.
- Peace of Mind: If you are aware that your family is financially protected in case of your death, you will have a peaceful mind and can focus on other areas of life.
Advantages of Single Premium Term Insurance
Single premium term insurance has several advantages as enumerated herein:
- Financial Planning: One can plan better financially because one will know exactly how much to pay in advance.
- Peaceful Mindset: Knowing that your family will be financially secure within a certain term, without further financial obligations, can give you peace of mind.
Term Insurance vs Single Premium Term Insurance – Key Points
- Both policies are for a specific term, but the conditions available in one can vary from the other. Term insurance generally allows more options when choosing the policy term, while a single premium is bound to have a few limited term options.
- Regular term insurance is generally more cost-effective since the premium is spread over several years. Single-premium term insurance may have slightly higher premiums due to the lump sum payment.
- Regular term insurance offers scope for better financial planning since you get a chance to adjust your coverage based on the change in needs. In the case of single premium term insurance, since you are paying the whole amount at a time, it can be heavy on the pocket.
- Regular-term insurance offers more flexibility regarding policy changes and additions. However, in single premium options, flexibility may be somewhat limited once the first premium is paid.
Ultimately, one can choose to opt for either a regular or single premium term insurance policy based on personal financial condition, risk appetite, and long-term goals.
While both term insurance and single-premium term insurance are designed to provide financial security for your family, the only difference lies in how premiums are structured. Careful consideration of your financial situation and needs is important in deciding on the right product.