Which Premium Payment Option One Should Choose in Life Insurance?

Have you heard of the notion that term insurance plans are not flexible? The truth couldn’t be further away! Even as a basic financial protection plan, term plans provide policyholders with a number of possibilities.

Take, for example, the premium payment alternatives. Term insurance companies give a variety of payment options to help you meet your specific financial needs. Although term insurance premiums are typically low (especially if you purchased the policy at a younger age, say in your 20s, because the premium is locked in based on your purchase age), having such diversity across the board helps you pay your premiums by the predetermined deadline. This will help you ensure your policy doesn’t lapse. 

Among the several premium payment options available, two in particular are extremely popular among policyholders due to the benefits they provide: Regular Pay and Limited Pay. In this article, we will do the discussion of which one is the best and why:

What are Regular Pay Term Insurance Policies?

Regular Pay Term Insurance Plans are those in which the policyholder decides to pay his or her premiums until the policy matures. In this situation, the policyholder pays his or her premiums every year until the policy matures, and the premium payment cycle does not terminate before the term plan matures.

Assume XYZ begins a life insurance policy at the age of 25 and continues it until she reaches the age of 65. Her coverage is ₹2 crores, with regular premiums ranging from ₹14k to ₹18k and the approximate can be calculated via term insurance premium calculator. In this situation, she is paying an annual premium of ₹14k-18k till she is 65 (when her term insurance coverage stops).

What is a Limited Pay Term Insurance Plan?

Limited Pay Life Insurance Plans are for policyholders who want to pay in advance but not all at once. He/she selects a limited time period as the frequency with which the insured will pay off the premiums.

Here’s an example to help you understand it better:

XYZ, a 30-year-old, purchased life insurance coverage till he turns 70, but he just wants to pay for the next ten years. However, his policy will remain in effect until he reaches the age of 70. This will be referred to as a limited payment option.

For a ₹2 crore coverage, he will pay between ₹55.7k and ₹67k in premiums throughout the first ten years of his policy and the approximate can be calculated via the term insurance premium calculator. 

Note: Limited pay can be offered in a variety of ways, including 5 years, 7 years, 10 years, 12 years, 15 years, and even up to 60 years, depending on the term insurer’s offer.

Remember, most life insurance companies include both options through their top-term policies. However, there may be exceptions. So, if you’ve chosen a premium payment frequency, either read the policy wording yourself or enquire with the insurance about its availability.

What are the key differences between regular pay and limited pay term insurance plans?

Key features of regular pay term insurance plans.

Consistent Premium Payments: If the insured chooses the regular pay premium payment option, he or she must pay his or her premium on a regular (monthly, quarterly, or annual) basis throughout the life insurance plan’s duration.

Flexibility: Because the premiums are paid until the maturity age of the policy, the premiums are substantially lighter on the insured’s financial health.

Key Features of Limited Payment Term Insurance Plans

Fixed Premium Payment Period: The limited pay option enables a policyholder to complete their premium payment within a predetermined time frame, which is usually less than the policy tenure.

Continued Coverage: Even after the premiums are paid off, you can continue to enjoy the life insurance coverage (now that you have no financial responsibilities to it).

What are the advantages of regular pay versus limited pay term insurance plans?

Benefits of Regular Pay Term Insurance Plans

Affordable Premiums: Regular pay requires the policyholder to select a payment frequency of monthly, quarterly, or annual. Obviously, this means the insured can expect low premium rates at the time of payment. How much the premium will be chargeable can be known using the term insurance premium calculator. 

Benefits of Limited-Pay Term Insurance Plans

Reduced Financial Burden: Once you have paid off your whole premium within a predetermined time frame, you will have no financial obligations under the insurance. Nonetheless, you can enjoy the benefits of term insurance coverage, which can protect your family financially in the event of your untimely death.

What are the disadvantages of regular pay versus limited pay term insurance plans?

Disadvantages of Regular Pay Term Insurance Plan

The disadvantages of limited pay term insurance plans

Higher Total Premium Payments: When you calculate the premiums paid over time, you will notice that they are substantially higher than in the case of a limited payment option.

Premium Commitment: While term insurance is a long-term financial commitment, making regular premium payments ensures that the premium payment continues for a long time. One of the major worries in this instance is that if you miss a single premium payment (after the grace period) due to unanticipated financial circumstances, your insurance may lapse.

Higher Premiums: While the limited pay option provides peace of mind because you are no longer financially obligated for the term insurance policy, the premiums rise dramatically and the same can be known using the term insurance premium calculator. You should consider your existing financial situation before committing to such high premiums.

What Should You Choose: Regular or Limited Pay Term Insurance Plans?

When policyholders ask if they should choose a regular or limited pay premium payment option in term insurance, the answer always remains the same: it varies by the situation. 

Here are a few examples to explain the circumstance and the choice:

CASE 1: A risky profession: If the policyholder works in a risky career, such as the army, or enjoys risky hobbies, such as skydiving, term insurance companies are hesitant to provide them coverage since they pose a high risk of payout. However, supposing you were able to obtain a term insurance coverage. In that instance, it’s advisable to go with a limited pay choice because it will get you out of financial debt sooner and eliminate the possibility of a policy lapse. This ensures that your financial needs for protecting the family in the case of your untimely demise are adequately addressed.

CASE 2: Fixed Income/Salaried Employee

If you are a salaried employee with a guaranteed monthly income, you can always opt for regular pay. This ensures that there are no unnecessary strains on your financial health while you continue to benefit from the coverage of a term insurance policy.

In a word, 

The decision between regular pay and restricted pay premium payment alternatives in term insurance policies is based on your financial situation, buying age, occupation, and lifestyle. While both premium payment frequencies offer advantages and disadvantages, depending on your health, financial situation, and lifestyle preferences, one will stand out as the best option.