How to Choose Between Single and Regular Premium ULIP

Unit-Linked Insurance Plan (ULIP) is a reputed investment instrument that offers insurance and wealth creation under a single scheme.

Why should I invest in ULIP is a question that many potential investors ask. One of the biggest advantages of ULIP is that it offers higher returns as compared to other financial instruments, like bank fixed deposits, government securities, and bonds, among other options. Besides this, with ULIP, you can avail of tax deductions, reap the benefits of compounding in the long term, and switch from one fund to another as per the market situation.

Now when you have made up your mind about investing in ULIP, it is time to select the right plan out of the many choices available in the market. You can seek the help of a ULIP calculator to compare the various features of different ULIPs and choose the one that can help you achieve your long-term financial goals. However, before investing your hard-earned savings, it is advisable to know about the various ULIP charges associated with your plan. It will help you narrow down on the correct ULIP, and you can make an informed decision whether to go for a single premium or a regular premium policy.

Difference between single premium and regular premium ULIP 

A single premium ULIP is where you will have to pay the premium at once in lump-sum. On the other hand, the regular premium plan is where you pay the premium either monthly, quarterly, semi-annually, or annually.

Investors who have a surplus investment amount and can afford the pricey premium rate can opt for a single premium ULIP. Even investors with irregular cash flows can invest in a single premium ULIP, as there is no guarantee that they can pay regular premiums on time.

Factors to decide between single and regular premium ULIPs

You can consider the following aspects while choosing an appropriate plan between single and regular premium ULIPs.

  • Convenience 

Opting for a single premium plan is more convenient when compared to a regular premium ULIP. It is because you donot have to worry about remembering the premium payment dates. Selecting a single premium ULIP will ensure that the premium payment will never lapse.

  • Affordability 

Investors who have excess funds in their savings account or those who have extra cash can opt for a single premium ULIP, as they can afford to pay the hefty premium at one go. Those investors who earn unexpected gains from the sale of the property, income from business profits, and bonuses, among other earnings like these, can also consider such a plan. Those who cannot afford to pay a high premium in a lump sum can opt for regular premium ULIPs.

  • Tax deductions

Both types of premium payment plans offer tax benefits under Section 80C of the Income Tax Act, 1961. You can claim a maximum permissible amount of INR 1.5 lakh per year as a deduction. If you are considering a single premium plan, you will get the tax deduction just once.Conversely, if you opt for a regular premium ULIP, you can avail of these benefits until the policy’s tenure.

  • Risk

With a single premium plan, you will be unable to benefit from rupee cost averaging. On the other hand, you can make the most of rupee cost averaging when you invest in a regular premium policy. As you know that equity markets can become volatile or inconsistent, it gives you a chance to average your investment cost, which can help you maximize the returns on investment.

It is advisable to ascertain your financial position before deciding on which premium payment plan to consider. You can use the ULIP plan calculator to determine the premium for a particular policy. Besides this, it is essential to understand the various ULIP chargesso that you can make an informed decision. ULIP is one such investment instrument that can help you achieve your financial goals in the long run if you manage your funds optimally. So, invest wisely and make the most of your plan.