While buying a term insurance policy, you may invariably compare the different plans based on their features, benefits, premium rate(s), etc. However, another critical factor that you must consider is the premium payment mode. Generally, insurance companies allow policy buyers to choose the premium payment mode based on their convenience.
The popular ways to pay the premium are regular, one-time, and limited. Each of these premium payment modes has its own benefits. You must choose one based on different factors like existing liabilities, financial condition, expected future income, retirement plan, etc. However, before you make the final choice, it is advisable to understand the difference. In this article, we shall compare limited pay and regular payment options.
What is the limited pay premium mode in term insurance?
As the name suggests, in a limited pay term insurance policy, the policyholder pays the premium only for a specific term that is pre-determined at the time of buying the policy. However, the insurance holder gets the coverage for the entire policy tenure.
At the end of the premium payment tenure, you are not obliged to pay any dues to the insurance company.
Let us understand this with an example.
Suppose Mr Parag Singh, a 40-year-old salaried employee, buys a term plan for 20 years with a limited pay option. He wants to retire at the age of 55 and pay off his dues from 10 years for now. In this case, Mr Singh must pay the premium until he reaches 50 years, after which he need not make any payment. However, he will continue to get the cover for the full 20 years.
What is the regular pay premium payment mode in term insurance?
A term insurance policy with a regular premium payment option is a standard policy where you must pay the premium for the entire policy tenure. In such a plan, the duration of the policy and the premium payment is the same. However, in the regular pay option, you have the flexibility to choose the frequency at which you want to pay the premium. You can choose to pay the premium monthly, quarterly, half-yearly or annually.
Let us understand this with an example.
Mr Parag Singh, a 40-year-old salaried individual, buys a term insurance policy with a regular premium payment option for 20 years. In this case, Mr Singh will pay the premium for 20 years and get the coverage for the same period.
Limited pay vs Regular pay – what to choose?
Whether you choose the limited pay or the regular pay option, the decision must be based on your financial condition.
A term plan with a limited pay option is highly suitable under the following conditions:
- If you have a short or limited career span like sportsperson, model, etc.
- If you do not have a fixed and regular income source.
- If you work in an unpredictable or high-risk environment like the navy, mines, oil rigs, etc.
- If you are old-aged and are nearing retirement.
- If you need an uncomplicated plan with a convenient payout option.
A term plan with a regular payment option is highly suitable under the following conditions:
- If you have a fixed income source.
- If you want the premium to be affordable, spread across a longer tenure.
- If you want to spread the tax benefits across years.
- If you have just started working and do not earn a high income.
Final Word
Both limited pay and regular pay options in term insurance serve specific purposes and have unique pros and cons. The premium payment mode you choose is entirely up to your preference and financial condition.
