Definition
Single Premium Policy
A single premium policy is a life plan funded by one lump-sum payment at inception, with no further premiums due.
Single premium plans suit buyers with a windfall who want cover or savings without an ongoing payment commitment. Because the entire amount is paid upfront, the policy is never at risk of lapse and the sum assured is often a modest multiple of the premium under tax rules.
For income-tax exemption on maturity proceeds, the sum assured must meet the minimum multiple of premium prescribed in the Income-tax Act; single premium policies frequently struggle to meet this, so a portion of the proceeds can be taxable. They are best assessed on post-tax internal return.
Related terms
- Sum AssuredSum assured is the guaranteed amount an insurer pays to the policyholder or nominee on the occurrence of the insured event.
- Limited PayLimited pay is a premium structure where the policyholder pays premiums for a shorter, fixed number of years while the cover continues for the full policy term.
- Regular Premium PolicyA regular premium policy requires the holder to pay premiums throughout the entire policy term at the chosen frequency.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.