Difference Between Limited Pay & Regular Pay in Term Insurance

At the time of buying an insurance plan, while considering all other factors, mode of payment is also an important factor. Generally, there are 2 different ways to make payment for policy premiums i.e. regular and limited. Both of them have their own limitations and benefits. The choice is based on various aspects including existing liabilities, present financial situation, retirement plans, expected future incomes, etc. Before you decide to make the ultimate choice between regular and limited pay term, it is important to understand each of them in detail.

Regular Pay

Under this option, the term for your premium payment is equal to the plan term. Since, you are required to pay the premium in advance, you need to make payment for premiums for one plan year at a time. The out-flow for each premium is lowest under this option.

Limited Pay

Under this option, the payment term of premium is less than the policy term but it does not cover the option of single premium. Each life insurance plan might give you some PPT options in this payment feature.  
The best life and term insurance plans lets you make premium payments till the age of retirement, which is very helpful as the premium payment can be extended by you, however, still keep it within your working years, while the plan gets extended into your retirement.

Which Premium Payment Option is Better?

The choice between regular pay and limited pay is dependent on an individual and his needs. The option that may look perfect for a specific situation may not offer the same advantage in another. Therefore, the choice is based on individual financial condition.

The Regular Pay Term is ideal for the following Individuals:

• People having a fixed income source i.e. salaried person, etc.
• Individuals that wish for affordable premiums spread over a longer duration.
• Individuals that are disciplined in payment of premium.
• Individuals who have just begun working and are far from their age of retirement.
• People who wish to spread their tax benefits over the years to receive other investment benefits.

The Limited Pay Term is ideal for the following Individuals:

• People having a limited career duration i.e. actors, sportsperson, etc.
• Having a flexible income source---- self employed people.
• Fluctuating monetary conditions------individuals working on bonus, commission, etc.
• Work environments that are unpredictable---- army personnel
• Impending retirement within a few years
• Requirement for uncomplicated plans with convenient payouts.

At the End

Both the methods of premium payment i.e. regular pay and limited pay have their own set of pros and cons. The suitability is based on the monetary conditions, policyholder’s preference and the financial plan. The ultimate choice needs to be done on comprehensive evaluation of the present and future financial requirements and conditions.

Also read - Which Life Insurance Policy Should I Buy?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.