Should I opt for Limited Pay or Regular Pay Term Insurance?

Term insurance is a form of life insurance that provides financial protection to the policyholder’s nominee/family in case of the untimely death of the life assured. Many people looking to buy Term Insurance may get confused by the many forms of premium payment options available. The type of term policy chosen can also depend on the ability of the policyholder to pay premiums. In this article, we will look at the different types of premium payment options, i.e. Limited Pay insurance, Regular Pay insurance and Single Pay insurance.

What is Regular Pay insurance?

Regular Pay insurance is a form of life insurance where the policyholders need to make regular payments (monthly, quarterly, half-yearly or yearly) for the whole duration of the insurance term. Under the regular pay plan, if the policyholder stops premium payments and the grace period passes, the term insurance plan may get cancelled.

What is Limited Pay insurance?

Limited Pay insurance is a type of life insurance where the policyholders need to make recurring, regular payments for a limited period. This limited period of time is usually lower than the term of the policy. For e.g., if a policyholder chooses a Limited Pay plan with 30 years of insurance cover, they will have 10 years to make all the premium payments. This is just an example and actual terms of premium payments may vary under different companies/policies.

What is Single Pay insurance?

Single Pay insurance is a form of insurance where the policyholder has to make a single lump sum payment as the premium. This one-time term insurance premium payment is usually made at the time of purchase of the policy and does not affect the term of insurance coverage. This is an attractive option for individuals with funds to spare as they do not have to worry about payments lapsing in the future. Many insurance companies also offer discounts to customers if they choose Single Pay insurance.

Differences between Limited Pay and Regular Pay 

Limited Pay Vs Regular Pay: Which Premium Payment option should you choose?

Each of the policies mentioned above has its advantages and disadvantages. People should take into consideration the amount of money they can set aside for premium payments and then decide which policy to choose. There are many term plan premium calculators available online that can help you calculate the premiums under different policies.

Regular Pay – Salaried individuals and people who have a stable and regular income should opt to go for a Regular Pay term plan. A Regular Pay insurance plan ensures that the cost of premium payments is split throughout the plan and the average cost per payment goes down considerably. Regular Pay term insurance is also a good option for people who are looking for a limited time policy, as they can just stop their term insurance premium payments and the policy will lapse.

Limited Pay – Individuals who have unstable but high income like freelancers, self-employed, or business owners can choose the Limited Pay term policy. Once all the premiums have been paid up in time, the policyholders do not have to worry about policy lapsing in the future due to the unavailability of funds. Individuals who are going to retire in a few years can also choose this option, so they do not have to make payments after retirement.

Single Pay – Individuals who have a large number of disposable funds that are not going to be needed elsewhere can choose a single pay policy. While the lump sum payment is significantly higher than regular premium payments, the one time-payment means the policyholder never has to worry about any future payments while getting the full-term coverage.