Term Insurance plans to help you in providing financial security to deal with unfortunate situations. It offers a considerable coverage amount at low premium rates, making it an important addition to your financial planning. Also, a term insurance plan can be customized based on your needs. The selection of the mode of premium payment is one of the most important decisions that policyholders make at their convenience. Ideally, there are regular and limited premium payment options available for the insured. Here we will discuss how a term policy differs in the premium payment mode and how beneficial it is in the future.Read more
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Let’s discuss them in detail:
Term Insurance is a pure life protection plan that offers a substantial amount of coverage at lower premium rates. It is a valuable insurance plan for the security of your family members against financial burdens in the absence of the person who is the sole earning member of the family. In case of premature death, the term insurance plan pays the sum assured to the family during the policy tenure. Moreover, it helps your family to meet their daily expenses in case of emergencies as well as they can save for future responsibilities along with receiving the death benefit. The higher the sum assured, the higher the death benefit, and therefore the pay-outs from your term plans provide financial protection to your loved ones.
A Limited Pay Term Insurance Plan is a term insurance plan that offers you the benefit of paying a premium amount for a limited time. This plan ensures that you are covered for a longer period, even in case when you stop paying your regular premiums. One of the major advantages of this plan is limited premiums and continuous coverage.
Kamal buys limited-term insurance coverage for 20 years. As he is earning well these days, he wants to pay all due payments within 10 years from the start of the plan. In such a situation, the premium amount will be paid by Kamal in the 10 years, while the cover will last for 20 years i.e., the entire term policy duration.
Let’s discuss in detail Limited pay till 5, 10, and 60 years:
In Limited pay till 5, the premium payment term is less than the policy term but does not involve the option of a single premium. Every life insurance policy might provide you with some premium payment term options under this scheme such as 5 years, 10 years, and 15 years. The shorter your PPT, the more the premium will be.
In Limited Pay till 10 life insurance, the life assured has to pay a premium amount in the first 10 years of ownership of the policy, but the advantages last for life. For instance, Ram, a 40-year-old buys a term insurance cover for 20 years with an option of limited payment. He is expecting to get retired at 55 years and wants to pay off all his premium dues 10 years from now. In such cases, Ram will be responsible for paying amounts of a premium only till 50. After this Ram does not have to pay anything. However, the coverage will continue for 20 years.
Limited pay Term insurance plans offer you the chance to pay premiums only for a limited period. However, one can still be covered for a long time after the end of limited-term premiums. In limited pay till 60, if you buy limited-term life insurance for 80 years but choose to pay only for 60 years. In such a case, you are required to pay a premium for 60 years, but the insurance coverage will be stretched up to the age of 80 years. This simply means that you do not have to pay any amount for the rest of 20 years.
A limited Pay Term Insurance Plan is specifically beneficial for those having varying financial situations, a changeable working environment, flexible income or salary, and near the age of retirement.
The term premiums can be paid using any of the following options:
Single Premiums: This is where the premium is paid in a lump sum amount upfront while purchasing the policy.
Regular Premiums: The premiums are paid regularly throughout the policy term.
Limited Premiums: It is when the premiums are paid for a limited period and the life cover is longer than the premium paying term.
Term plans with limited pay are suitable for the following people:
Unpredictable Working Environment: If you’re working with an organization that doesn't have a powerful foundation and cannot bear some economic developments in the future.
Self-Employed Individuals: Suitable for self-employed individuals who are new to making a business and have an unstable source of income.
Short Career Span: Sportspersons, performers, and artists generally have short-lived career spans. Thus, their income is limited to a specific term
Retirement: If you’re an individual nearing the age of retirement, you can select to pay till the time of retirement and avail of the benefits all over life.
As we have studied what is Limited payment in the above section, now let’s learn about its benefits. Limited premium payment insurance plan releases the financial stress of paying premiums for a longer time. This plan provides you an option to choose a longer coverage time as per your requirements. With the availability of several plans, one should always be aware of the features and benefits of the plan before buying any policy. This decreases the problem which you might face at a later stage. Let's understand the benefits:
Shorter Premium Term – This is one of the primary benefits of limited pay term insurance that it does not require you to pay for longer periods. It offers payment options for limited, and a pre-decided tenure option is also available under this plan. The plan will run longer than the tenure you chose to pay premiums and will continue to offer coverage throughout the policy. This plan is an ideal option for those who want to spend their retirement years without any financial burden and stress.
Extended Coverage Options: Since the premiums end after a limited period, you can choose a term plan with coverage that extends into retirement. With this, you can be covered against risks for a longer duration which makes the plan much more relevant.
Decreases The Chances Of Relapsing Of Policy – Limited pay term insurance reduces the chances of policy relapse because the premiums are payable for a limited duration and you are not required to pay premiums on time for a longer period. The premium amount is paid earlier, so the possibility of relapsing the policy also decreases.
Tax Benefits – Another amazing benefit of limited pay term insurance is that it offers tax benefits under section 80C of the Income Tax Act, 1961. The premiums of a limited plan are higher than the regular term insurance plan resulting in maximized deductions i.e., up to 1.5 lakhs from the taxable income of the policyholder.
Ideal For Individuals With A Short Career - Most individuals are currently working in a freelancing work culture whose life span is not that much great. So those people are more comfortable with a limited premium payment option instead of a regular premium plan. Because a regular plan is a long-term premium assurance.
Do Not Miss Installments – If the premium term is low, then the risk of missing any installments is also less. As it has been already stated that it decreases the chance of policy relapse, thus preventing your loved ones from losing the benefits.
As you know there are two options to pay premiums: Limited pay and Regular pay. When you select limited pay vs regular pay term insurance options, it is important to determine the benefits specific to your requirements. Let’s discuss the comparison between limited pay and regular pay to have a detailed understanding:
|Limited Pay||Regular Pay|
|Flexibility to pay a premium for a limited period||You can pay a premium throughout the policy tenure|
|Life coverage lasts for the whole policy tenure, nonetheless, the duration of premium payment||Life coverage lasts for the equivalent time as the period of premium payment|
|The amount of premium may be higher since it is limited to a small duration||The amount of premium is distributed over the policy term, making them lower.|
|The policy lapse chances are low since premium amounts are payable only for a particular duration||The policy lapse chances are high since the premium amounts are payable for a more extended duration|
|Payments end within a specified period and do not extend past retirement||Payments are made throughout the policy tenure, until the end of the policy term|
|Limited dues help life assured to profit maximum possible coverage||Regular dues which are increasing with age, constrict the coverage due to the continued financial stress|
|Tax savings benefit can be maximized u/s 80C of the Income Tax Act, 1961 since the premium is higher||Tax savings benefits are distributed across the years of policy tenure and only offer limited deductions|
A limited-pay term plan can help you save on premiums in the following ways:
Most insurers offer attractive discounts on term plans with limited pay options.
The savings can be extended by opting for an annual premium payment option.
Suppose you are a 35-year-old, and you have selected a term plan for 20 years. If the premium paying term is for 5 years, then your premium payments will be over by the age of 40, but you can enjoy the term coverage till 60 years of age.
Limited Pay term plan has a well-defined and shorter premium paying term whereas regular has a long premium payment, covering the entire policy duration. The chances of policy relapse are lesser in limited pay term insurance compared to regular pay. In regular pay, there is a high probability of policy relapsing because of the payment default. Limited pay has the potential to save approximately 55% in premiums due to the advance payments. No discounts are provided or no rewards are earned for the premiums paid in the case of a regular pay term insurance plan.
Term insurance plans are a necessity for everyone looking to secure their family’s financial needs in case of an eventuality. However, you have the option to choose the plan based on your requirements. The limited pay term plan is one such option. In limited pay with a limited payment term, you get the option to get all the insurance benefits promised during the policy term. Choose the right insurance company with a good claim settlement ratio and enjoy a longer risk cover while paying for a small term.
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