Term Insurance 224 views January 4, 2021

While choosing a term life insurance policy, the focus remains much on the payout your nominee will receive in case you die during the policy term. And that’s perfectly okay! But getting the death benefit also depends on premium payment. That’s where the mode of life insurance premium payments – Limited Pay, Regular Pay and a Single Pay – comes into the picture. A Single Pay is a one-time payment of premiums and could be out of reach for many, so only a few can choose this payment plan. The comparison would thus be for Limited Pay vs Regular Pay. So, we’ll compare both these payment plans so that you could make the right call. But before that, we will read what these plans are. Let’s begin!

Term Insurance

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What is Regular & Limited Pay in a Term Insurance Plan?

Regular pay is a plan where the premium payment will continue till the policy term. In other words, the time of policy coverage and premium payment term remains the same. Whereas in a limited plan, the policy coverage time and premium payment term will differ. The premium payment term will be less than the policy coverage time. For example, if the policy term is 30 years, but the premium payment term remains up to 20 years, you won’t need to pay the premium after 20 years. However, you will continue to get cover for 30 years.

Let’s Compare Regular Pay and Limited Pay

After a brief about Regular Pay and Limited Pay options, it’s time we compare these two based on several aspects such as affordability, flexibility, etc. Let’s check below how these two term insurance premium payment options fare across aspects.

AspectsRegular PayLimited Pay
Premium Payment TermExtendedShorter
CoverageFull CoverageFull Coverage
Premium AmountRemains LowerRemains Higher
Scope for Policy LapseThe possibility is high with a longer premium payment termThe possibility is less with a shorter premium payment term
AffordabilityAs the premium amount is spread over a longer time, the premium amount remains lower and thus ensures higher affordabilityAs the premium amount is centered for a limited period, the premium amount payable remains higher. So one must earn high enough to choose this plan
What to Expect If You Fail to Pay the Premium?The policy will lapse and there will be no benefits payableIf the policy acquires a surrender value, and if you default on premium payment after that, your policy will continue with reduced benefits
Overall Premium OutgoOverall premium outgo over the policy term can be higherOverall premium outgo over the policy term can be lower than a regular plan
Tax BenefitsTax benefits will spread across the years. But yearly, the tax deductions would be lessAs the premium amount remains high, tax deductions could be higher annually

The Question Still Remains – Which to Choose from Regular Pay vs Limited Pay?

Based on how these two term insurance premium plans fare across aspects, you would have decided the option you want to go with. We can further help you select a better option by giving you some more information. As the difference between the premium amount can be significant, the feasibility will vary across individuals based on their earnings. If you are earning high, a limited pay option would be better and save you a lot. However, if your income is on the lower side, paying a higher premium via a limited pay option will be tough to manage. So, you can decide the best option for you.

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