Limited Pay Versus Regular Pay In Term Insurance: Why Is Regular Pay Preferred And How To Choose The Right Payment Plan?

There are three types of premium payment options in term insurance- regular pay, limited pay, and single pay. In the case of regular pay term insurance, you need to pay the payment in a periodic manner for the entire term of the policy. Whereas, in the limited pay option, you essentially make recurring payments but for a specified limited period. Also, the life cover remains the same all through the tenure. In this case, you can make the payment of the entire premium amount fully once you buy the plan. All through the policy tenure, the life cover remains valid. Hence, you don’t need to get anxious about arranging funds at every due date or about your policy lapses owing to non-payment. Moreover, insurers often offer attractive discounts on single-payment term insurance premiums.

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Difference Between Regular Pay Term Insurance And Limited Pay

In the case of a regular payment duration, regular pay term insurance refers to longer, lasting throughout the period, whereas limited pay term insurance means a pre-defined period, shorter than the policy term. In regular pay, there is full coverage for the entire policy term, but buying extended coverage beyond retirement age can be financially challenging. In the case of limited pay, it is extended coverage is irrespective of limited payment time, and it allows longer coverage post-retirement. For regular pay, there is no loss if the policy is surrendered abruptly as the policyholder can get an adjusted value, whereas, for limited pay, there is no benefit available upon policy termination due to non-payment. In the case of regular pay, the financial burden is distributed evenly throughout the policy duration. Whereas, for limited pay, the entire burden is concentrated over a shorter time. When it comes to regular pay, the payment amounts are higher, whereas, for limited pay, premium amounts are smaller.

How To Choose The Right Payment Option

You choose the right payment option for your term insurance based on your payment ability and life stage.

If you are a salaried person, with a fixed income, you might find the regular payment easier. Also, if you are young, and you are looking for coverage until your retirement age, this regular pay option will reduce your total premium cost. With this, you can also enjoy the tax benefits under Section 80C all through the policy period.

In the case of limited pay, you go for it when you are not too sure about paying premiums in the future. This option is suited for people with short career spans like sportspersons, those working in uncertain situations like the army people, business owners, or self-employed people with irregular income, and people nearing retirement age but seeking coverage up to a higher age bracket. In such cases, you can pay off your premiums while working.

Hence, based on your requirements and convenience, you could opt for either regular pay or limited pay.