Limited Pay vs Regular Pay Term Insurance

Term insurance is said to be the simplest form of life insurance. Here, you agree to pay the life insurance company a premium, in return for which the company offers you life cover. In case of your unfortunate death during the term of the policy, your appointed nominee will receive the death benefit. If you survive the term, the policy comes to an end, and no amount is payable.

Bonus Insight: ‘No maturity benefit’ keeping you away from a term plan? Worry not. You can choose TROP! TROP is a type of term insurance where if the insured survives the policy term, the premiums paid so far are paid back!

Sounds simple so far. However, like many other life insurance plans, term insurance also offers flexibility in premium payment. You, as a policyholder, can decide to pay the premium in different ways. Let us understand.

Paying Term Insurance Premiums

There are generally three types of premium payment options in a term insurance policy. These are:

1. Single Pay
2. Regular Pay
3. Limited Pay

A single pay premium policy is where, at the time of policy inception, you pay a lumpsum amount of money to the insurance company. In return, the insurer covers you throughout the term that you choose. A single pay option is well-suited for someone who has a lumpsum amount with them that they can invest in a term plan. However, choosing between limited pay term insurance or regular pay term insurance may require a little more discussion.

Limited Pay vs Regular Pay Term Insurance

Let us start with the basics; a limited pay option is one where you pay the premiums for a specified period of the policy term. The duration of this premium paying period is much less than the policy term. However, the coverage stays intact for the entire tenure. Let’s use an example to understand better.

Lalit Soni is a 30-year-old athlete. He opts for a term insurance policy with a policy period of 30 years.

Knowing that in his professional life, he may not be able to have a steady income for a very long time, he chooses a premium paying term of 10 years. He knows that he can easily pay the premiums for the next 10 years. So, basically, he will pay the premiums for just 10 years but get coverage for 30 years. Sounds good, right?

Let us now come to a regular pay term plan. In a regular plan, as the name suggests, the premium is paid for as long as the policy exists. Let us use another example to understand. 31-year-old Mohit Kumar is a bank manager. He wants to safeguard his wife and newborn daughter with a term plan. He opts for a regular term plan, where the policy term is 30 years so he will pay the premium for 30 years, too.

Limited Pay vs Regular Pay: What to Choose?

On the face of it, a limited pay term plan may seem a good idea, as you pay the premium for a much shorter time. However, you should know that in a limited pay, the premium will be higher as they are constricted to a short term. In a regular pay plan, the premium is spread across a long tenure, and so they are low.

Simply put, both these plans have their pros and cons. You would have to analyse your insurance needs and your financial situation before you make up your mind. Someone who is looking at more affordable premiums can choose to pay regular premiums. However, someone who wants to pay off the premiums early can go for limited premiums.

Let’s Sum It Up

Whether you choose a limited pay or a regular pay term insurance, it is important that you do not procrastinate much and choose one soon. A term plan is a form of pure life insurance and basically an easy-to-understand plan. The premiums are far more affordable than other plans that come with a savings/ investment model, too.

What’s more, when you opt for a term plan with Jio Insurance Broking, you can get a discount of up to 80%!

So, when you decide to start a term insurance policy, analyse your financial situation. Keep your liabilities and your coverage needs in mind and make a well-informed decision.

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