Term Insurance: Limited Pay vs Regular Pay

Premium payment is one of the crucial parameters that govern the decision of buying insurance policies. It is required to fit into your budget so that the policyholder continues it for the long term and the policy remains active. In comparison to other life insurance services and products, term insurance is way more economical and pocket-friendly. However, the premium payment mode is a contributing factor to its cost-effectiveness. Let’s understand the premium payment options that suit your requirements.

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Different Types Of Premium Payment Options: 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 time provided to pay premiums is lower than the duration of life cover 
  • Single Pay, where only one-time lump sum amount payment is allowed

While buying an insurance policy, policyholders have to choose the right mode of paying premiums. Premium Payment Term is the most important factor to be considered in limited and regular pay. Here’s a quick lay down about PPT: 

Premium Payment Term (PPT) 

PPT is the total number of years, a policyholder is required to pay 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. 

Regular Pay Term Insurance 

In Regular pay, the life assured is required to pay the premium for the complete policy tenure. It provides you the flexibility to choose your premium paying option i.e., yearly/ half-yearly/ or monthly. In this, the premium payment term (PPT) is equal to the policy term. For example, Sheetal of 40 years buys a regular pay term insurance plan for 30 years. Now, Sheetal will pay premiums for the complete policy period and get the coverage for 30 years. 

Limited Pay Term Insurance 

In this, the insured makes periodic payments for a pre-decided limited period. The duration of paying premiums is less than the policy term. Though the complete coverage remains intact throughout the policy time. The policyholder can pay their premiums when they have sufficient funds. In limited pay, the premium debts are more than that of regular pay. Under this, several premium payment terms (PPT) options are also available such as 5, 10, 15 years. Now, what is the right term insurance for you? The term insurance policy pays a premium till the age of your retirement. This is very advantageous as assured have the option to extend the premium payment. Shorter PPT leads to a payment of higher premiums, however, there are several benefits of limited pay term insurance over other insurance policies. 

Let’s understand this with the help of an example: Ridhi, 40 years old works in an IT company and buys a term plan for 20 years for her future protection. She wants to get retire at 55 years of age and henceforth, wishes to pay all her due premium in 10 years from this year only. In such a situation, Ridhi 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 years. 

Regular Pay Term Insurance Vs. Limited Pay Term Insurance 

One should always be aware of the features and benefits of the insurance policy before buying it. Here the table illustrates the comparative analysis between the limited and regular pay: 

Benefit Type 

Regular Pay Term Insurance 

Limited Pay Term Insurance 

Premium payment time 

Continuing and long-term commitment all over the policy 

It is shorter than the policy term and pays premiums for a pre-specified period

Coverage 

It offers total coverage for the complete policy term. In this case, purchasing long coverage after the retirement age can be challenging financially

Regardless of limited premium payment, it offers extended coverage. It also allows long coverage after the retirement age. 

Premium 

Premium increases with the age 

Premiums are required to be paid in a set time and it does not increase proportionately with age 

Financial Burden 

Financial load distributed evenly across the complete policy term 

Financial stress for a specific period 

Tax Benefits 

Tax benefits get splits across the years and only limited deductions are offered under this plan. 

It offers to maximize deduction in tax under section 80 C of the Income Tax Act 1961. 

Surrender

If in case the life assured wants to surrender the policy shortly, then he/she suffers no loss. They also receive an adjusted value from the insurer

It offers no option to terminate the policy due to the non-payment. 

Policy Lapse 

Upon the policy lapse, no benefit is paid to the policyholder because of premium evasion

The probability of policy lapse is very less because of the shorter payment time

Payments 

The expenses and payments are long-lasting even after the retirement age 

The policyholder is not required to pay after a specific time and it does not extend after retirement. 

Discounts 

Regular pay offers no rewards or discounts on paying premiums 

In Limited Pay, you can save 55 percent premiums due to advance payments

How To Choose The Right Option To Pay Premiums?

The selection depends on your ability to pay. 

  1. Limited Pay 

    Select the Limited pay option if you don’t have enough savings and will not be able to pay premiums for the long term. For example, individuals having short career, business owners. 

  2. Regular Pay 

    Regular pay option is an ideal choice for salaried employees. Young people go for this plan who are looking out for coverages till their retirement ages and investing early reduces the premium costs. 

In A Nutshell! 

Policyholders should always choose a plan after analyzing its features and benefits. Limited and regular pay term insurance plans, 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 be insured with term insurance to protect your family against any financial challenges during critical times.

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