scorecardresearchChildren's Day: Single premium vs Regular premium child plans: Which is better?

Children's Day: Single premium vs Regular premium child plans: Which is better?

Updated: 14 Nov 2022, 10:30 AM IST
TL;DR.
Everyone knows about the importance of securing their child’s future financially. But, in the era of competition among the companies, there is a lot of confusion and it is sometimes difficult to determine what is right for your child. In this article, we will solve the confusion between single premium plan and regular premium plan.
Single premium vs Regular premium child plans

Single premium vs Regular premium child plans

When it comes to securing your child’s future, no amount of money can be enough to save. But, you have to select the right financial plan which is enough to secure your child’s future financially and they do not have to be financially stressful while making their critical decisions in life.

This children’s day, let’s dive deep into the financial concepts which help you as parents to secure your child’s future financially while keeping yourselves stress free. Let’s celebrate this children’s day by not only giving them school leave but also a better future.

There can be various ways of starting off an investment plan to protect your child's future, but in the case of an insurance plan, you can have two ways, either through paying a single premium plan or through regular premium plan like an SIP.

Single premium plan

When you attempt to pay a lump sum amount of money to the insurer in the name of your child’s future, in which you have guaranteed to receive a particular amount of money after a predetermined period of time, it will be said as a single premium plan.

Merits

  • Beneficial during the times of financial crisis. If you have already paid your premium at once, you do not have to worry about next interval premium
  • Get to see the magic of compounding more significantly as the amount of your single premium must be higher than regular ones
  • Staying invested for a longer period of time will help you in overcoming the economic crisis and market volatility, while protecting you from making bad investment decisions.

Demerits

  • You might not be able to avail the tax benefits under section 80C of income tax act, as the limit of claiming deduction is 1,50,000
  • Not suitable for investors who do not have a lump sum corpus of amount.

Regular premium plans

When you plan your investment in a particular way that you fixes a particular date in which you make the payment towards your investment account (it could be insurance, SIP, mutual fund, etc), and expecting to receive a huge corpus after a period of time, then it will be said as regular premium plans. You can modify your insurance plan, include add-ons, or other facilities provided by the insurer according to your child’s requirements.

Merits

  • Regular premium plans are flexible enough to make changes as when your child grows, their requirements grow as well.
  • You can claim tax deductions under section 80C of income tax act up to 1,50,000 every year.
  • Best suitable for the parents who do not have a huge corpus to invest in a single premium way.

Demerits

  • To see the magic of compounding with your money, you have to stay invested for a longer period of time.
  • If you miss out on any of the premium at the predetermined date, you will have to pay a penalty. The amount of penalty differs from insurer to insurer.

Now, when you know all the benefits and disadvantages of single and regular premium, you must know the eligibility criteria as well. The primary eligibility criteria would be availability and affordability of the plans. If you have a huge corpus and do not have another plan to invest in somewhere else, you can go for a single premium plan for securing your child’s future financially. This is how you can decide as well.

Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com

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First Published: 14 Nov 2022, 10:30 AM IST