Term Insurance: Limited Pay V/S Regular Pay
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Payment of premium is one of the significant factors that can affect the policy purchasing decision. It needs to fit within your budget so that the insured continues to keep the insurance policy active for a long term. The mode of premium payment is an added factor to the cost-effectiveness of the plan. Let us know about the different premium payment options that meet all your requirements.
Types of Premium Payment Option for a Term Insurance
The following premium payment options are offered by a term insurance plan:
- Regular Pay: Under the regular pay option, the term of premium payment is equal to the term of the policy.
- Limited Pay: Under the limited pay option, the time given to pay premium is lower as compared to tenure of life insurance cover.
- Single Pay: Under this option, only a single time lump sum payment amount is allowed.
At the time of purchasing an insurance plan, the policyholders need to select the correct premium payment mode. The premium payment term is the most significant factor to be considered in regular and limited pay.
Difference Between Regular Pay Term Insurance and Limited Pay Term Insurance
It is crucial for an individual to know about the features and benefits of an insurance plan prior to purchasing it. Given below is the table that shows the major differences between regular pay and limited pay:
|
Type of Benefit |
Regular Pay Term Insurance |
Limited Pay Term Insurance |
|
Time of Premium Payment |
Long term and continuous commitment throughout the policy period. |
It is shorter in comparison to the term of the policy and pays the premium for a predetermined time period. |
|
Premium |
The amount of premium increases with age. |
It is required to pay the premium in a set time and it doesn’t increase proportionately with age. |
|
Coverage |
It provides complete coverage for the entire policy duration. In such a case, buying long coverage post the retirement age can be financially challenging. |
Irrespective of the limited payment of premium, it provides increased coverage. It also provides longer coverage post the age of retirement. |
|
Tax Benefits |
Here the tax benefits get split over the years and just limited deductions are provided under this plan. |
It offers the policyholder to maximize the tax deductions as per section 80C of the Income Tax Act. |
|
Policy Lapse |
Once the policy lapses, the policyholder receives no benefit due to the premium invasion. |
Here the probability of your policy lapsing is low due to the shorter time for payment. |
|
Discounts |
Regular pay provides no discounts or rewards on payment of premium. |
Under the limited pay option, you can save up to 55 percent premiums because of advance payments. |
|
Payments |
The payments and expenses are long lasting even post the age of retirement. |
A policyholder does not have to pay after a specified time and it doesn’t get extended post-retirement. |
How to Select the Correct Option for Premium Payment?
The selection is based upon your ability to pay:
- Regular Pay
For a salaried person, a regular pay option is a good choice. Young individuals choose this insurance plan, who are searching for coverage options till their retirement and doing early investments reduces the cost of premiums.
- Limited Pay
Choose the limited pay option in case you are not having adequate savings and wouldn’t be able to make payment for premiums for a long term. For instance, people having short careers, owners of the business.
At the End
A policyholder should always select an insurance plan after examining its benefits and features. Regular and limited pay term insurance plan, both have their own sets of disadvantages and advantages, however the plan selection depends entirely on the policy buyer’s suitability like financial plan, future income, etc. These days, it is extremely significant to get insured with term insurance in order to safeguard your family against any financial challenges during the tough times.
You may also like to read- Should You Buy Add-Ons With a Term Insurance Plan?
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.
