The premium payable for life insurance is a critical factor governing purchase decisions. It needs to fit into your budget so that you can continue the payment and keep your policy in force. Term insurance premiums are typically more economical than other life insurance products. However, the mode of premium payment contributes to the affordability to a significant extent. Hence, you need to understand the available alternatives to select the payment option best suited to your resources.

Types of Premium Payment Options in Term Insurance

Term insurance offers the following premium payment modes:

  • Regular pay – premium payment term is the same as the policy term
  • Limited pay – duration for paying premiums is less than life cover duration
  • Single pay – one-time lumpsum payment

You need to make a choice when you buy the policy. Here’s a detailed description of each payment option.

What is regular pay term insurance?

In this option, you need to pay the premiums periodically for the entire policy period. With regular pay, you can choose to pay your premiums yearly, half-yearly or monthly.

What is limited pay term insurance?

In the limited pay option, you make recurring payments but for a pre-specified limited period. This duration is lesser than the policy term. But the life cover remains intact throughout the tenure.

Hence, you can pay off your premiums when you have the necessary funds. Here the premium installments are higher than that for regular pay term insurance.

What is single pay term insurance?

With this option, you can pay your entire premium amount at one go when you buy the plan. The life cover remains valid throughout the policy tenure. Thus, you need not worry about arranging funds at every due date or your policy lapsing due to non-payment. Also, insurers often offer attractive discounts on single payment term insurance premiums.

Key differences between term insurance limited pay vs. regular pay

Feature Regular pay term insurance Limited pay term insurance
Premium payment duration Longer, lasting throughout the policy period. Pre-defined period, shorter than the policy term.
Coverage Full coverage for the entire policy term, but buying extended coverage beyond retirement age can be financially challenging. Extended coverage irrespective of limited payment time, allows longer coverage post-retirement.
Flexibility No loss if policy surrendered abruptly as the policyholder can get an adjusted value. No benefit available upon policy termination due to non-payment.
Financial burden Load evenly spread out throughout the policy duration. Entire load concentrated on a shorter span.
Premium cost Payment amounts higher . Premium amounts smaller.

How to choose the right payment option?

The choice between term insurance limited pay vs regular pay depends on your payment ability and life stage.

Limited pay:

Choose the limited pay plan if you are unsure about paying premiums long into the future. This option is suitable for individuals:

  • Having short career spans like sportspersons
  • Working in unpredictable environments like the army
  • Business owners or professionals with fluctuating income
  • Nearing retirement age but want coverage up to a higher age bracket

In such scenarios, you can pay off the premiums during your active work-life.

Regular pay:

People with a fixed income source might find the periodic, premiums easier to service. Hence, if you are a salaried employee, this mode can be more viable for you.

Also, if you are young and looking for coverage only until your retirement age, this option can reduce your total premium cost. You can also enjoy the tax* benefits under Section 80C throughout the policy period.

Single-pay:

If you have surplus money available, you can create an asset for your family through this plan.

Conclusion

You should select the payment option after evaluating the pros and cons of term insurance limited pay vs regular pay. The decision depends on your current financial situation and expected future earnings. However, regardless of the payment mode, it is crucial to stay insured. It will safeguard your family against economic challenges in case of an eventuality.

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* Tax benefits are subject to conditions under Section 80C, 10(10D), 115BAC and other provisions of the Income Tax Act,1961. Good and Service tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
COMP/DOC/Nov/2020/3011/4913
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