You may come across a lot of life insurance providers offering this as premium payment feature to its policyholders. Quite often offline agents also use single premium as a marketing tool to promote products as in most of the single premium cases the initial commission is also high compared to a regular premium payment options. People also get lured by the single premium offer because other than onetime payment you also get away from the hassles of remembering the renewal dates every year. But if get into the real calculation and value the premium considering the inflation factor, in general scenario you are always paying a much higher cost for the same amount of cover compared to one who is paying premium regularly.
Let’s consider the case of two friends Vivek and Ravi, both of them are getting married soon so they wanted to plan for a life insurance cover of Rs.75 lac for a term of 15 days. Though Vivek was quite lured by a single premium payment option of Rs.2.5 lacs because when he compared the same with Ravi’s option of regular payment he found himself savings Rs.50,000 for the same amount of cover and term. In case of Ravi, he preferred to opt for regular payment where he would pay approximately Rs. 3 lacs over a period of 15 years. Though Vivek’s option seems cheaper from Ravi’s but if you consider the inflation factor of 6% Vivek is actually paying Rs.6lacs over a period of 15 years where as Ravi is just paying Rs.3 lacs, which is much cheaper that what Vivek would pay in case of single premium. So before considering any of payment for life insurance plan always considers the time value of money.
Other than the time value of money as a factor to choose the right type of premium payment schedule, affordability and convenience is a factor to be looked into. Though by considering the real value of the premium, regular payment of premium is a much better option. For a salaried policyholder the regular payment is the right option to choose because he has that the regular cash flows where if you are businessmen who don’t have regular flow of money may prefer to use a single premium option.
Though affordability is a factor which everybody considers but in a case of life insurance this should not be the only factor to consideration. Looking at the difference is the real value of premium based upon time value of money it overrides all other factors like convenience and affordability