Term Insurance: Limited Pay vs Regular Pay

Term Insurance Limited Pay vs Regular Pay: An Overview

Both term insurance, regular pay vs limited pay, have their pros and cons. Before choosing the right premium payment tenure, you should take a look at the following term insurance limited pay vs regular pay table, which can help you determine the most suitable term for paying the premiums.

What is a Premium Payment Term (PPT)?

PPT or the Premium Payment Term is the total number of years, a policyholder is required to pay the premiums. It can be equivalent to less than the policy term. For example, if a policyholder buys a term life insurance for 20 years, then the premium payment term can be of 20 years or less. In this case, 20 years is the policy tenure for the term insurance plan.

What Are the Different Types of Premium Payment Options in Term Insurance?

Following are the premium payment options offered by term insurance policies:

• Regular Pay: Where the premium payment term is equal to the policy term.

• Limited Pay: Where the premium pay term is lower than the policy term.

• Single Pay: Where only a one-time lump sum premium is paid for the entire tenure.

While buying an insurance policy, policyholders have to choose the right mode of paying premiums. Here’s a quick description of both the premium payment options.

What is Regular Pay Term Insurance?

Regular pay in term insurance is the most common premium pay option, where the premiums are paid for the entire policy term. In this option, the premiums per month are much lower than the premiums charged for the limited tenure, but in the end the policyholder ends up paying more in overall premiums, as the limited premium pay option charges up to 59% lower overall premiums.

Let’s understand with the help of an example:

For example, Sheetal, a 40 year old female, buys a regular pay term insurance for 30 year policy term. Now, Sheetal will pay have to make the regular premium payments for the entire policy tenure, to ensure continued coverage. If she suffers an untimely death during this 30 year policy term, the insurer will payout the sum assured to the nominee of the policy.

What is Limited Pay Term Insurance?

The limited pay term insurance allows customers to pay off the premiums for the entire policy term in a shorter tenure like 5, 10, or 15 years instead of the regular premium pay tenure of the entire policy term. The monthly premiums for a limited pay vs a regular pay may be slightly higher, but the overall premiums the customer pays in a limited tenure is usually much lower than the overall premiums in a regular premium pay term.

Let’s understand this with the help of an example:

Ridhi, 40 years old, works in an IT company and buys a 20 year term insurance for her family’s financial protection. She wants to retire at 50 years of age and hence, wishes to pay all her due premium in the next 10 years. She opts for the limited premium option while buying the policy and thus is only required to pay a premium for 10 years i.e., till 50 years of age. After which she is not required to pay any premium to the insurer but the coverage will continue for complete 20 year policy term.

Which is Better, Limited Pay or Regular Pay in Term Insurance?

The selection between limited pay vs regular pay: term insurance depends on your ability to pay and your life stage.

This Limited Pay option is suitable for individuals:

• Who have short career spans such as sportsperson

• Who works in unpredictable occupations such as the army

• Self-employed or Business owners who don’t have a fixed income

• Individuals who are near retirement age but need cover up to higher age

Regular pay is best suited for the following:

• Individuals having fixed income might find the period payment easier.

• This mode is also helpful if you are a salaried employee.

• If you are young aged and looking for plan coverage till the age of your retirement.

Final Thoughts!

Policyholders should always choose a plan after analysing the features and benefits of limited pay vs regular pay. Both have their advantages and disadvantages, but the selection of plans entirely depends on the suitability of the customer such as their future income, financial plan, etc. Nowadays, it is important to have a term insurance to protect your family against any financial challenges during critical times.

Note: Check all the best term insurance plan in India.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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