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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What is a Premium Payment Term (PPT)?

PPT 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 time provided to pay premiums is lower than the duration of life cover
Single Pay, where only a one-time lump sum amount payment is allowed

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.

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What is Regular Pay Term Insurance?

In regular pay, the life assured is required to pay the premium for the complete policy tenure. It provides insured the flexibility to choose his/her 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.

What is 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.

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 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 do 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 Premium Payment Option?

The selection between Limited Pay and 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 surroundings such as the army
Professionals or Business owners who don’t have a fixed income
Who is near retirement age but needs coverage up to higher age

Regular Pay

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.

In A Nutshell!

Policyholders should always choose a plan after analyzing the features and benefits of Limited and regular. 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.

Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

“Tax benefit is subject to changes in tax laws. Standard T&C apply.”