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As the policyholder, it is essential to evaluate limited pay vs regular pay to make an informed decision while choosing a premium payment option while buying life insurance plan. Limited pay premium payment option allows you to only pay the premiums for a specific duration of the policy tenure. You can choose to pay off the premiums well before the policy tenure ends.
However, this does not affect the coverage period of the insurance policy. You will get life cover for the entire policy tenure, irrespective of the premium payment period.
Let us consider an example to understand limited pay vs regular pay –
Mr. Kumar, a 35 years old male, has opted for a life insurance plan with a policy period of 30 years. He wants to pay all his premium liabilities before his retirement, at the age of 55. Therefore, if he chooses a limited premium payment option for his insurance plan, he can pay off the premiums in the next 10 or 20 years, as it suits him.
As the name suggests, regular pay premium payment option works for most insurance policies. The policyholders are required to pay the premiums throughout the policy tenure to enjoy life coverage.
The duration of the premium payment is equal to the term of the policy.
Considering the same example above can help you understand how regular pay option is different from limited pay –
If Mr. Kumar has purchased a life insurance policy that offers life coverage for 20 years, his premiums will be spread over the entire period. The regular premium payment plan might be favorable for individuals with a steady income source.
Every earning individual has different requirements out of his insurance plan. It is heavily dependent on their specific financial profile. Hence, you must calculate term insurance premium and coverage for your family to make a sound financial plan. The limited pay vs. regular pay evaluation will help figure out which works best in optimizing the benefit for an individual.
Based on your income source, long-term obligations, and preference for premium payment term, regular and limited pay options in term insurance support different needs. The following is a comparison of limited pay vs regular pay term insurance:
| Features | Limited Pay | Regular Pay |
|---|---|---|
| Premium Payment Tenure | Premiums are paid only for a short period | Premiums are paid throughout the policy term |
| Premium | Premiums are lower | Premium are higher |
| Coverage | Coverage continues for the full term, despite a short premium payment term, making it easier to maintain protection even after retirement. | Coverage continues for the entire policy term, although opting for coverage beyond retirement may cause financial distress. |
| Financial Burden | Financial responsibility is concentrated within a limited period | Financial responsibility is spread evenly throughout the policy term |
Before buying a term insurance plan, try to understand the differences between the [policy term](link) and the premium payment term. It will help you plan out your premium payments and avoid delays that cause financial stress.
Check out the following table:
| Policy Term | Premium Paying Term |
|---|---|
| Policy term refers to the period for which your term plan remains in force. Once this period ends, the policy either matures or becomes inactive. | Premium paying term is the duration for which you have to pay the premiums to keep the policy in force. |
| The insurer defines this tenure at the time of policy purchase. | This period may coincide with the policy term, or it may be less, depending on the plan and the premium paying option you select. |
If you choose a premium payment term of 35 years, you will have to make premium payments for the entire duration.
If you choose a 15-year premium payment term, you complete the premium payments within the first 15 years from policy issuance. You do not have to pay a premium for the remaining 20 years of the policy term.
With this option, you pay a large amount every time within the 15-year duration, as compared to what you would with the regular pay option. However, this will only be for a limited time, enabling you to enjoy stress-free coverage for the remainder of the policy term.
Comparing the limited pay vs regular pay option requires a rational assessment of financial position and long-term goals. The following are a few practical pointers that guide your decision-making
When choosing between regular pay and the limited pay option, you need to consider a few factors. This includes your income, expenses, and preference.
Here’s how you can decide between regular pay and limited pay options:
Now that we have reviewed limited pay vs regular pay in detail, let us look at some other essential things about life insurance premiums:
1. Life insurance companies offer different premium payment options according to the frequency as well. You can choose to pay the premium monthly, quarterly, half-yearly, or yearly, depending on terms of the selected plan
2. Premiums are payable in advance through online payment methods or cheque or DD
3. Insurers assess the risk profile of the policyholder carefully before arriving at the cost of the premium. It may include medical examinations, , ,disclosure of smoking habits and many other factors.
4. Under Section 80C of the Income Tax Act 1961, you can avail tax benefits on the premium paid towards life insurance plans
A. Most life insurance companies offer grace period of 15-30 days after the due date of payment of premium. During the grace period, the insurance policy works the same, and there are no penalty charges applicable to the premium. However, failure to pay the premium after the grace period may lead to a policy lapse.
A. The change in premiums depends on several factors such as the addition of riders, declaration of life-threatening habits such as smoking, drinking, etc. and is determined at the time of purchase of the policy.
A. The premium payment options, such as limited pay vs regular pay, are available for people with different financial profiles. You can choose according to your requirements.
A. The single premium payment option allows policyholders to pay the entire premium amount in one installment. It is favourable for individuals who wish to minimize policy lapse risks due to non-premium payment over the policy tenure. As expected, the amount of the premium in such cases will be higher.
ARN No: Sept21/Bg/09B
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