Have you heard of this myth regarding term insurance plans not being flexible?
Well, the truth couldn’t be further away!
Even as a vanilla financial protection plan (without term insurance riders), term plans offer policyholders a variety of options.
Take, for example, its premium payment options. Term insurance providers offer multiple choices across the payment schedule to cater to your customised financial bandwidth (read premium payment capability/convenience).
Although term insurance premiums are usually extremely affordable (even more so if you have purchased the policy at a younger age, say in your 20s, since the premium gets locked in as per your purchase age), having such diversity across the board helps you pay your premiums within the pre-decided deadline. This will help you ensure that you don’t end up with a lapsed policy.
Among all the options available for premium payment, there are 2 in particular that are especially popular among policyholders considering the benefits they offer - Regular Pay and Limited Pay. Today, we will give you a quick insight into what experts have to say about REgular Pay vs Limited Pay, which is a better pick, and why!
Read on!
What are the Types of Premium Payment Options in Term Insurance Plans?
Terms insurance providers are pretty stringent about their eligibility criteria, considering that it enables you to gain access to a substantial sum assured. The eligibility criteria include running background checks and asking you questions about your educational qualification, income slab and stability, age, lifestyle and habits, pre-existing medical conditions, and more.
While the questions regarding your income slab and current financial bandwidth are to offer you a suitable term insurance sum assured, they also help insurers decide upon your financial strength to pay your premiums within a stipulated time frame.
However, since life insurance products have been in demand for long, they cater to quite a diverse policyholder pool. Hence, term insurers offer to provide multiple options across premium payment frequencies -
- Regular Pay Term Insurance
- Limited Pay Term Insurance
- Single Pay Term Insurance
What are Regular Pay Term Insurance Policies?
Regular Pay Term Insurance Plans are when the policyholder decides to pay his/her premium until the policy matures. In this case, the policyholder pays his/her premiums yearly until the policy matures, and his premium payment cycle doesn’t end before the maturity of the term plan.
So, let’s say Samaira takes a term insurance plan when she is 25 years old until she turns 65 years old. Her coverage is ₹2 crores, and her regular premiums come to ₹14k - ₹18k. So, in this case, she is paying an annual premium of ₹14k - ₹18k until she turns 65 (that’s when her term insurance coverage ends).
What are Limited Pay Term Insurance Plans?
Limited Pay Term Insurance Plans are cases in which the policyholder wants to pay in advance but not in one go. He/She chooses a limited duration of period, which is the frequency at which the insured will pay off the premiums.
Here’s an example to understand this better -
Manish is a 30-year-old who took a term insurance policy until he turns 70 but wants to pay for the next 10 years only. However, his policy will stay active until he turns 70. This will be referred to as a limited pay option.
So, for a ₹2 crore coverage, he will be paying an estimated ₹55.7k - ₹67k, and his premium payment cycle will be done within the first 10 years of his policy period.
(Please note: Limited pay can be offered in different ways, namely - 5 years, 7 years, 10 years, 12 years, 15 years, and pay till 60 years as per the term insurers’ offer.)
(Kindly remember: Most term insurance providers offer both options via their top term plans. However, there might be exceptions. So, if you have decided upon a premium payment frequency, either go through the policy wording on your own or ask the insurer about the availability of the said frequency.)
Considering you are now clear on the concept of both regular pay and limited pay in term insurance policies, it’s time to delve into a detailed comparison of both - regular pay vs limited pay premium options in term insurance plans.
What are the Key Features of Regular Pay vs the Key Features of Limited Pay Term Insurance Plans?
What are the Advantages of Regular Pay vs the Advantages of Limited Pay Term Insurance Plans?
What are the Disadvantages of Regular Pay vs the Disadvantages of Limited Pay Term Insurance Plans?
What are Single Pay Term Insurance Policies?
While we have talked quite a bit about limited pay vs regular pay premium payment options in term insurance plans, there is one more type of payment frequency that, though rarely opted for, is still offered by the insurers.
This is a single-pay term insurance policy. As the name suggests, the insured pays off the entire premium for his/her term insurance plan at one time, at the time of purchase. Since, in this case, the insured puts so much skin into the game, insurance providers are more than eager to offer substantial discounts on the total premium paid. So, in total, the premiums paid for single pay are much lower than either limited pay or regular pay options.
However, there are 2 severe downsides to this payment methodology - the first being the incredible pressure it puts on your finances to pay such a large amount in one go. Second, usually, in the case of regular pay, term insurance providers are reluctant to offer any term insurance riders. This is a massive loss considering that you could have unlocked multiple perks and gained your penny’s worth if you could avail of riders like Critical Illness benefit, Waiver of Premium, Accidental Total and Permanent Disability Rider, Increasing Cover, and more.
What To Choose: Regular Pay Term Insurance Plans or Limited Pay Term Insurance Plans?
When policyholders come to us with doubt about whether they should choose a regular pay premium payment option in term insurance or a limited pay premium payment option in term insurance, we always tell them it varies from case to case.
Here are a few examples that explain the situation and the choice -
CASE 1: Risky profession
If the policyholder is in a risky profession like, say, the army or has risky hobbies, like skydiving, term insurance providers are reluctant to offer them a policy since they pose a high risk of payout. However, suppose you have still managed to get a term insurance plan. In that case, it’s best to go ahead with a limited pay option since it’ll ensure that you are free from financial obligations faster, with no chances of lapse in the policy. This guarantees that your financial requirements for safeguarding the family in the event of your unfortunate absence are met well.
CASE 2: Fixed incomes/ Salaried employee
If you are a salaried employee with a sure shot influx of fixed amount being debited at your bank every month, you can always go in for the regular pay option. This ensures that there are no redundant pressures on your financial health while you still continue to enjoy the coverage from a term insurance plan.
CASE 3: Late availing of term insurance policy
If you are in your 40s or late 30s and you decide to purchase a term insurance policy, and you plan to take it for a longer duration (even after your retirement), it’s best to get into a limited pay option. This will help you complete your premium payment faster while you still have a fixed source of income.
CASE 4: Young policyholder
If you are in your 20s and are purchasing a term insurance policy, please choose the regular pay option. Insurers will charge you less premium as a young policyholder, and if you have just started working, such low premiums mean that you can afford to go ahead with it on a monthly/quarterly/annual basis without adding to the financial burden.
Conclusion
In a nutshell, choosing between regular pay vs limited pay premium payment options in term insurance plans depends on your financial condition, purchase age, profession, and lifestyle. While both the premium payment frequencies have pros and cons, considering your health, financial, and life choices, one of them will stand out as the suitable option. All you need to do is reach out to expert insurance advisors and seek their help.
