Single-premium products are useful for some

Last Updated: Thu, Jul 11, 2013 04:41 hrs

Pay once and forget about it - that is the principle of single-premium policies. In addition, there is no fear of either lapse or reduced paid-up value as well.

But these policies have been aggressively mis-sold over the years because agents do not have to chase the customer in the following years. There are other problems with the product as well. The cover, often, is insufficient. The Budget has also made the product unattractive by removing the tax benefit on it under Section 80C unless the sum assured is ten times the premium. At present, most policies offer a sum assured of five times. Then, these products have a lock-in period of five years and there are charges of up to five per cent, if the policy is surrendered before three years.

Despite all these, such policies have their utilities. If you are a person who has an erratic income flow - for instance, sport persons or film actors or even freelancers go for such products. They will ensure that you have adequate insurance cover for a long period. So, even if there are no tax benefits, buying may make sense.

The premiums are substantial, so are the benefits. For example, if a 30-year-old buys a policy of 10 years for Rs 2.5 lakh in Bajaj Allianz's Shield Insurance single-premium policy, the expected maturity benefit will be Rs 4.8 lakh. In comparison, if one pays 10 premiums of Rs 25,000 each in Bajaj Aliianz's iGain III regular premium plan, the maturity benefits would be Rs 3.86 lakh after ten years. Though the maturity benefits are higher, only ones who have a sudden windfall or surplus or erratic income need to go for such policies.

Even insurers target non-resident Indians or businessmen. Rajeev Kumar, chief actuary of Bharti AXA Life, says, "The average premium of such products is big and, hence, it is a good option for such people, but will not suit the salaried class as the premiums are high and not all policies are tax-efficient." Industry officials say that the fewer customers will opt for the product after the Budget reduced the tax benefits, but another thing that is likely to happen is that insurers might increase the premium to give a higher maturity benefit.

Of course, in ideal circumstances you should keep you insurance and investment needs separate. Simply buy a term policy as an insurance cover and investment in mutual funds, stocks and debt instruments. Financial planner Suresh Sadagopan says, " Buy a pure term cover and invest the rest in instruments according to your risk appetites. If tax-saving is not the motive, people who have large profits with good amount of disposable income or are sitting on huge investible surplus can go for such policies."

Of course, single-premium products aren't the best option but they are useful for a certain class of people.

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