Investing in life insurance plans has been a popular choice for a long time which enables you to save tax. But with the advent of various modes of paying your insurance premiums, policyholders get a flexible option. Here enters the single premium insurance plan that allows you to pay all the premium at once. For many salaried individuals, this might not be a favorable option but for people with businesses having certain profit cycle, the single premium plan is a hit. So, let’s look at what single premium plan is, who should opt for this plan and the tax benefits.
Single-premium life insurance policy is a plan which enables you to pay your premiums at once. When compared to regular premium insurance plans, you can directly pay the lump sum amount for a 30 year or so tenure and be worry-less about the policy. To purchase such a policy, you need to have a large sum of money which can be difficult to arrange when you want a high sum assured. You also have to be careful of the tax benefit as your premium has to be 10% of the sum assured.
This type of life insurance policy is beneficial for individuals who have irregular cash flow and cannot opt for a regular premium plan. It is also a good option for people who dislike financial commitments and want to clear off the remaining premium at once. Some individuals who do not have certainty regarding their job and career will also find the single premium policy as a lucrative alternative. Also, you need to be able to afford the hefty sum to be paid keeping tax benefits in mind. So, let’s understand the taxation for this plan.
Here are some conditions for claiming tax benefits for the single-premium policy which you should be aware of before getting a plan:
You can only claim the tax benefits for a single-premium term plan if your premium is equal to or less than 10% of the sum assured. If it is more than 10% then only the amount that satisfies the criteria will be tax-free. As Section 80C of the Income Tax Act, 1961 has a maximum cap of INR 1,50,000. So, if your single-premium amount exceeds the 1.5 lakh mark-up then the rest cannot be claimed.
The maturity amount or death benefit can only be tax-free if the above criteria are met. If not, then the corpus will be taxed as regular income and will attract a Tax Deducted at Source (TDS) of 1%.