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Limited Pay vs Regular Pay: Which One To Choose?

Know more about Limited and Regular Premium Payment modes.

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Life insurance plans are in place to help you create a sound financial plan to deal with unforeseen circumstances. The contract between the insured and the insurer stands on some terms and conditions. The choice of premium payment mode is one of the significant decisions that the insured makes per their requirements.

Principally, there are limited and regular premium payment plans available for the policyholder. Let us take a closer look at limited pay vs regular pay to understand these payment options better. 

What is Limited Pay Premium Payment Option?

As the policyholder, it is essential to evaluate limited pay vs regular pay to make an informed decision while choosing a premium payment option while buying life insurance plan.

Limited pay premium payment option allows you to only pay the premiums for a specific duration of the policy tenure. You can choose to pay off the premiums well before the policy tenure ends.

However, this does not affect the coverage period of the insurance policy. You will get life cover for the entire policy tenure, irrespective of the premium payment period. 

Let us consider an example to understand limited pay vs regular pay –

Mr. Kumar, a 35 years old male, has opted for a life insurance plan with a policy period of 30 years. He wants to pay all his premium liabilities before his retirement, at the age of 55. Therefore, if he chooses a limited premium payment option for his insurance plan, he can pay off the premiums in the next 10 or 20 years, as it suits him. 

What is Regular Pay Premium Payment Option?

As the name suggests, regular pay premium payment option works for most insurance policies. The policyholders are required to pay the premiums throughout the policy tenure to enjoy life coverage.

The duration of the premium payment is equal to the term of the policy. 

Considering the same example above can help you understand how regular pay option is different from limited pay –

If Mr. Kumar has purchased a life insurance policy that offers life coverage for 20 years, his premiums will be spread over the entire period. The regular premium payment plan might be favorable for individuals with a steady income source.

Every earning individual has different requirements out of his insurance plan. It is heavily dependent on their specific financial profile. Hence, you must calculate term insurance coverage for your family to make a sound financial plan. The limited pay vs. regular pay evaluation will help figure out which works best in optimizing the benefit for an individual.

Difference between Limited Pay and Regular Pay

When you consider limited pay vs regular pay options, it is helpful to recognize the benefits particular to your requirements. Let’s look at the comparison between limited pay and regular pay to have a comprehensive understanding.

When you consider limited pay vs regular pay options, it is helpful to recognize the benefits particular to your requirements. Let’s look at the comparison between limited pay and regular pay to have a comprehensive understanding.

 


Limited Pay

Regular Pay

You can choose to pay the premium for a limited period

You pay life insurance premium throughout the policy term.

Life coverage lasts for the entire policy term, notwithstanding the premium payment duration.

Life coverage lasts for an equal time as the premium payment period.

Premium amount may be higher since it is constricted to a shorter period.

Premium amounts are spread over the policy tenure, making them lower.

The chances of policy lapse are lower since premiums are payable only for a specific period.

The chances of policy lapse are higher since the premiums are payable for a more extended period.

Tax Benefits can be maximized since the premium amount is higher.

Tax Benefits are spread across the years of the policy term.

How to Choose Between the Two?

When it comes to the premium payment option, the choice between limited pay vs regular pay depends on several factors. It is subject to the particular benefits of term insurance that an individual requires out of the insurance plan. It is not necessary that one option will be suitable for every individual. Here are some of the factors that will help you decide between limited pay vs regular pay:

  • The nature of your income source has a significant role to play when it comes to limited pay vs regular pay. If you have a steady income source, it might be favorable to opt for a regular premium payment plan since the costs will be spread across several years
  • Limited pay vs regular pay will have different benefits depending on your retirement plans as well. If you have plans to retire early, a limited pay option will help clear all the dues before the income source is affected.
  • Many people find the financial burden of insurance plans troublesome to keep up with for several years. A limited pay plan might work for someone looking for a convenient and efficient plan as the financial liability ends sooner 

  • The nature of your income source has a significant role to play when it comes to limited pay vs regular pay. If you have a steady income source, it might be favorable to opt for a regular premium payment plan since the costs will be spread across several years
  • Limited pay vs regular pay will have different benefits depending on your retirement plans as well. If you have plans to retire early, a limited pay option will help clear all the dues before the income source is affected.
  • Many people find the financial burden of insurance plans troublesome to keep up with for several years. A limited pay plan might work for someone looking for a convenient and efficient plan as the financial liability ends sooner
  • The working environment also impacts the requirements of life insurance. Someone working in an unpredictable environment such as defense personnel, mining or oil industry, etc. may choose to secure life coverage with a limited pay option. It will help them pay the dues sooner and remain stress-free about the coverage provided by the insurer
  • If you wish to spread the tax benefits on the insurance premium payments over the coming years, then a regular pay option might work best for you

What Else Should You Know About Life Insurance Premium Payment?

Now that we have reviewed limited pay vs regular pay in detail, let us look at some other essential things about life insurance premiums:

1. Life insurance companies offer different premium payment options according to the frequency as well. You can choose to pay the premium monthly, quarterly, half-yearly, or yearly, depending on terms of the selected plan

2. Premiums are payable in advance through online payment methods or cheque or DD

3. Insurers assess the risk profile of the policyholder carefully before arriving at the cost of the premium. It may include medical examinations, , ,disclosure of smoking habits and many other factors.

4. Under Section 80C of the Income Tax Act 1961, you can avail tax benefits on the premium paid towards life insurance plans

Frequently Asked Questions (FAQs)

Q. What If I Fail to Pay the Premium on Time?

A. Most life insurance companies offer grace period of 15-30 days after the due date of payment of premium. During the grace period, the insurance policy works the same, and there are no penalty charges applicable to the premium. However, failure to pay the premium after the grace period may lead to a policy lapse.

Q. Can Premiums Change After a Period? 

A. The change in premiums depends on several factors such as the addition of riders, declaration of life-threatening habits such as smoking, drinking, etc. and is determined at the time of purchase of the policy.

Q. Which premium payment option should I choose?

A. The premium payment options, such as limited pay vs regular pay, are available for people with different financial profiles. You can choose according to your requirements.

Q. What is the Single Premium Payment option?

A. The single premium payment option allows policyholders to pay the entire premium amount in one installment. It is favourable for individuals who wish to minimize policy lapse risks due to non-premium payment over the policy tenure. As expected, the amount of the premium in such cases will be higher. 

 

ARN No: Sept21/Bg/09B

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