The purpose of life insurance is to aid in the development of a healthy financial strategy for dealing with unforeseen events. Some terms and conditions govern the contract between the insured and the insurer. One of the important options the insured makes in accordance with their needs is the manner of premium payment.
The policyholder can generally choose between a limited and regular premium payment schedule. To better comprehend these payment alternatives, let’s take a closer look at limited pay in comparison to regular pay.
How can I pay for a limited pay premium?
To make an informed selection when selecting a term insurance premium option when purchasing life insurance, the policyholder must weigh limited pay vs. regular pay.
You can use the limited pay premium payment option if you want to just pay for a portion of the policy’s lifespan. You can choose to pay off the premiums well before the insurance tenure finishes.
The insurance policy’s coverage duration is unaffected by this, though. Irrespective of how long it takes you to pay the term insurance premium, you will have life insurance for the duration of the policy.
Let’s look at an example:
Mr. Sharma, a 35-year-old man, chose a life insurance policy with a 30-year policy term. Before he retires at age 55, he wants to pay off all of his premium obligations. So, if he selects a limited premium payment option for his insurance plan, he can pay off the premiums whenever it’s convenient for him—in the following 10 or 20 years.
What is the regular pay premium payment option?
Regular Pay Premium Payment Option—as the name implies—works for the majority of insurance contracts. To receive life insurance, policyholders must pay premiums for the duration of the policy. You may better grasp how the regular pay option and limited pay differ by using the same example as earlier.
If Mr. Sharma purchases a life insurance policy with a 20-year term, his premium payments will be dispersed throughout that time. For people with a reliable source of income, the regular premium payment plan could be advantageous.
Every earner has various needs in terms of his term plan. Their specific financial profile has a big impact.
The distinction between limited pay and regular pay
It helps to be aware of the advantages specific to your needs when comparing limited pay to regular pay choices. To gain a thorough idea, let’s compare limited pay to regular pay.
| Limited Pay | Regular Pay |
| You can choose to pay the premium only for a limited period | You pay a life insurance premium throughout the term of the policy. |
| Life coverage exists for the entire term of the policy, notwithstanding the premium payment duration. | Life coverage lasts for an equal time as the premium payment period. |
| The premium amount to be paid may be higher since it is constricted to a shorter period. | Premium amounts to be paid are spread over the policy tenure, thus making them lower. |
| The chances of policy lapse are lower since premiums are paid only for a specific period of time. | The chances of policy lapse are higher since the premiums are paid for a more extended period of time. |
| Term insurance tax benefits can be maximised since the premium amount is higher. | Term insurance tax benefits are spread across the years of the term of the policy. |
The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime.
How should I decide between the two?
The decision between limited pay and regular pay when it comes to the premium payment option depends on a number of variables. Consider the following variables when choosing between limited pay and regular compensation:
- When comparing limited pay to regular pay, the type of your revenue source is crucial. If you have a steady source of income, choosing a regular premium payment plan may be advantageous because the payments will be dispersed over several years.
- Your retirement plans will also influence the benefits of limited pay vs regular income. A limited pay option will assist in paying off all obligations prior to the impact on your income source if you intend to retire early.
- Many people find it difficult to maintain the financial weight of insurance policies over a long period of time. Someone seeking a practical and effective strategy would find a limited pay plan useful because the financial obligation expires earlier.
- The need for term insurance is impacted by the workplace as well. A person who works in a hazardous environment, such as a member of the military, an employee in the mining or oil industries, etc., may decide to obtain life insurance with a low payment
- A regular payment option can be preferable for you if you want to stretch the term insurance tax benefits on the insurance premium payments across the upcoming years.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
