Single premium policies as far as insurance is concerned were a very popular option till some time back and were aggressively marketed by various agents. However, they have seen a slowdown as an investment option in recent times. While looking at a choice in this regard several points have to be known by the investor.
The idea of having a single premium policy is to ensure that there is an element of convenience as far as the investor is concerned. There are many people who might not be able to afford the regular payment of a premium on an insurance policy and when these people have some money they would like to ensure that they buy some insurance. This should be one of the main factors that should drive this kind of insurance policy. One should not just buy a single premium policy because they are being sold aggressively at a certain point of time.
This is one of the most important factors that have to be present whenever an investment decision is made. The policy in this kind of form of a single premium has to be bought when there is a need for it and not when someone else wants to sell you the policy. If this is considered as the starting point for making the decision then a lot of the other factors will fall in place and reduce the problem for the investors.
A lot of the single premium policies that have been sold in the country in the last few years have been ULIP linked and people have tried to get the benefit of both these areas. One has to understand that the first area for consideration in an investment decision is the nature of the policy and the need for such a policy. All the other things come after that. There might be some additional benefit provided by these ULIP polices and one should consider them as an investment option only if the benefits are tangible.
There has to be a watch for the tax impact that might arise when an investor buys a ULIP policy. If the premium paid is more than 20 per cent of the sum assured then there are tax implications inform of disallowance of some of the premium paid from tax deduction as well as taxation of the amount received on maturity of the insurance policy. One has to be aware of these and then make the single premium investment to ensue that tax benefits are not denied.
The writer is a certified financial planner