Term Insurance: Limited Pay vs Regular Pay

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: 

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.