Premium Paying Term Meaning

The meaning of premium paying term is the period for which you need to pay the premiums to keep your policy active. This terminology could either be for the entire policy duration or could be spread over the years. It depends on the types of life insurance policies you opt for. Let’s understand it with the help of an example:

Assume that you buy a ₹1 crore term insurance plan at the age of 30 for coverage till 60. Your insurance provider decides your monthly premium as ₹675 till then. In this case, your premium paying term will be 30 years and the frequency of the payment is monthly.

The premium paying term is not just the duration for which you must pay the premium but there is more to it. It gives you a chance to decide affordable premium options for your term life insurance plan. Also, the customization of payment term helps you adjust the protection as per your current and future financial outlook.

Sharing the 5 key reasons below why the premium paying term is important:

• Keeps the policy active
  When you pay the premium regularly, your term plan remains active. Thus, the life cover you’ve opted for continues without any interruption. If you miss out on paying a premium, the policy will lapse. As a result, you’ll lose the coverage.
• Makes premium payments convenient
  The financial condition of every policyholder is different. Thus, each of them is free to choose the premium payment term accordingly. This makes the payment easy for them.
• Convenience-based payment term
  Every policyholder can choose a different premium payment term. It’s strictly based on their needs and there are no mandates from insurer. Further, it also depends on the policy they select and the other conditions attached to it.
• Affordability of the plan
  Your premium payment term affects the affordability of the life insurance plans you choose. Selecting a longer term means spreading out the premium over several years. In such cases, the premium is lower. However, if you select a shorter time frame, you’ll have to pay higher premiums in lesser time.
• Promotes Disciplined Payments
  You should be completely aware of the premium payment term as a policyholder to ensure timely payments. Thus, you’ll be disciplined in your payments in the long run as failing to ensure this can lead to a policy lapse.

On buying a term plan, you can select the type of premium paying term that suits you best. You can either pay the entire premium at once or choose to spread it over the years. The different types of premium paying terms include regular premium payment term, limited premium payment term, and one-time premium payment.

Let’s talk about each of them in detail:

• Regular Premium Payment Term
  You can pay your premium regularly throughout the policy tenure, selecting the frequency. That is, annually, semi-annually, quarterly, or monthly. In this case, you must pay till the age you’ve taken the coverage for. It’s ideal for you if you have a regular income source and expect a yearly increment.
• Limited Premium Payment Term
  Here, you can choose to pay the entire premium within a specified period. For example, you have purchased a term insurance plan for 25 years. You can pay the entire premium within 5, 10, or 15 years. It’s suitable for you if you’re planning to retire early or take a career break.
• One Time Premium Payment
  Choosing a term insurance with one time payment means paying a lump-sum at the time of purchase. Here, you’ll have to pay a heavy amount. However, you’ll be free from paying premiums for the rest of your life.

A term insurance with one time payment helps you avoid repeated payments. It’s also appropriate if you have a large sum of money that you want to utilise wisely.

Your premium paying term depends on various factors, such as your age, income, responsibilities, etc. You can choose a premium paying term based on your current financial ability and circumstances.

Choosing a short premium term means paying more amount in lesser time. It enables you to complete paying your premium soon. However, it could also become burdensome to pay heavy premiums over the years especially when you don’t have a fixed income source.

When you select a longer premium paying term, you can pay a lower amount. But this can also lead to a financial burden for a long time. Let’s show you how you can choose the right premium paying term based on your age and financial condition:

• In Your 20’s
  Your 20’s is an ideal time to buy a term life insurance. During this time, you have fewer responsibilities. So, you can choose a long duration and pay your premium regularly over the years. The cost is lower at this time and the premium is affordable. So, a monthly premium payment option is most suitable.
• In Your 30’s
  As you near your 30s, you might have a spouse and children. As a result, your responsibilities increase. At this stage, it’s suitable to choose policy with regular or limited premium term.
• In Your 40’s
  When you’re in your 40’s, your income and expenses will naturally increase. At this time, you can buy a term insurance plan with a limited premium paying term. In this way, you can stop paying the premium before your retirement.
• In Your 50’s and 60’s
  You’re now closer to your retirement and have probably cleared all your loans. Buying a short-term plan with regular premium payment term is suitable at this point.

You should also consider the policy duration and your future income expectations before making a choice.

You can choose the frequency of paying your premium. It should be based on the type of your policy, income, age, etc. Considering these factors, you should select which payment frequency suits you. Some people are comfortable paying the premium annually. Others prefer spreading it over the years and manage their expenses accordingly.

You can choose your preferred method from the options below:

• Annual Payment
  Paying the premium annually means paying only once a year. This makes financial planning easy for you. The overall costs are less in this type of payment. This is because some insurers offer discounts for annual payments.
• Semi-Annual Payment
  With the semi-annual payment system, you can pay the premium twice a year. This helps you maintain a balanced approach by spreading the cost over the year.
• Quarterly Payment
  The quarterly premium payment option allows you to pay the premium four times a year. In this case, you pay the amount every three months. You can plan your budgets easily with this method. However, the administrative effort might be more compared to annual and semi-annual payments.
• Monthly Payment
  This is considered as the most convenient method of payment as it aligns with your monthly income. You can strategise your regular expenses and manage your finances smoothly. Also, most insurance providers in India give you the option to pay through any of the following modes:
  • UPI
  • Credit/Debit Cards
  • Net Banking
  • Wallets
  • EMI
  • E-Cash/Cash Card

Buying a term insurance policy is a significant life decision. The plan helps to keep your family safe and secure in your absence. Thus, it is important for you to consider some factors before you make the policy payments. Let’s take a look at some of these factors below:

• Amount of the Coverage
  
  Before you make the payment, you must take a close look at the coverage amount. It should be sufficient to support your family after your unfortunate demise. However, the coverage should not be huge enough that you can’t afford it.
  
  The higher the coverage amount, the higher is the premium. Hence, you must choose the coverage that aligns with your income slab. Even after you grow older and your income increases, the premium remains the same. Thus, with passing years, you can pay the premium more comfortably.
• Grace Period
  
  Grace period refers to the time period you get to pay the premium after the due date has passed. Usually, you get up to 15 days to fulfill your obligation to the insurer for monthly payments. During this time, you don’t face any penalty.
  
  For annual, semi-annual, and quarterly premium payments, you may get a grace period of 30 days. Before you make any payment, ensure that you confirm the grace period from the insurer.
• Policy Type
  
  Each life insurance policy has a different set of advantages. While choosing a life insurance plan, you must check if it fulfills your financial goals and needs. Let’s quickly look at few of life insurance products that you can explore:
  
  i. A term insurance plan gives you a sizeable life cover without maturity benefits.
  ii. ULIPs give you the benefits of investments and insurance under one plan.
  iii. Annuity plans are life insurance plans with retirement benefits.
• Coverage Tenure
  
  Be careful about selecting the coverage tenure. All life insurance plans, except whole life insurance offer coverage only for a specified period. Hence, you should choose a plan with a longer period. You can select the tenure till your retirement This is because your family is dependent on you during your active working years. If something happens to you during this time, your insurance plan will keep them secure.
• Terms and Conditions
  
  Don’t forget to check the terms and conditions of the policy you choose. For instance, check the grace period offered. Also, see if there’s any waiting period involved. Besides, you should also look into the other terms, like the nomination, the option to avail a loan, etc.

Policy term refers to the period for which the policy remains active. On the other hand, premium paying term is the duration to pay the premium to keep a policy active.

However, there are other differences in terms of purpose, types, claim eligibility, etc. as well. Let’s quickly check them out in the table below:

Choosing the right policy and premium payment term is more than just a financial decision. It’s about securing your family’s future, so that they can live without any financial problems even in your absence.

It is also vital to understand your premium payment term as It helps you to check the affordability of the plan you want to purchase. Additionally, it helps in effective management of your finances.