What is Limited Pay vs Regular Pay in Term Insurance?

One of the most critical factors in decision-making regarding term insurance is the premium. However, the amount of premium and the mode of payment contribute to the affordability of a term plan.

Understanding the different modes of premium payment and their nuances is essential for people seeking tailored insurance solutions that align with their long-term financial goals and investment strategy.

Before comparing the modes, let's first understand what a premium payment mode in insurance is!

A premium payment mode is the schedule of payments according to which policyholders pay their insurance premiums. They can choose the mode that aligns with their financial preferences and budget.

It differs from payment frequency, which indicates how many instalments the premium is paid annually. For limited and regular payment modes, it can be monthly, quarterly, half-yearly, or annually.

There are the following kinds of premium modes available in life insurance:

• Regular Pay
• Limited Pay
• Single Pay

Let’s delve into these modes in detail.

1. Regular Pay Term Insurance

In a regular pay premium mode, the premium payment term is the same as the policy term. In other words, you need to pay a premium throughout the tenure of the policy.

However, you can choose the frequency of these regular payments. It can be monthly, quarterly, half-yearly or annually.

Thus, a regular pay policy allows the cost of insurance to be spread over a period of time, making it a feasible and more manageable solution.

2. Limited Pay Term Insurance

Limited pay term insurance is a type of life insurance where the policyholder pays premiums for a specified limited period, usually for a shorter duration like 10, 15, or 20 years. However, the coverage continues for the entire policy term, which is typically longer than the premium payment term.

Limited pay insurance, thus, provides the advantage of having a fixed premium payment period, offering financial flexibility to the policyholder and, at the same time, maintaining an extended coverage period without any premium obligations.

3. Single Pay Term Insurance

As the name suggests, single pay is a one-time lump sum premium payment wherein you pay the complete premium upfront while buying the policy. The life cover remains valid throughout the tenure of the policy, and you need not worry about the recurring premium payments.

Moreover, since the complete payment is made in one go, the total cost of insurance is considerably low compared to the limited and regular modes where the premium is spread out.

Now that we know about the different modes of premium payment let's see the differences between regular and limited pay.

1. Limited Pay Insurance

The most essential feature of limited pay insurance is that premium payments are subject to liability in a shorter period. Thus, choose a limited pay insurance if:

• You are working in an unpredictable and risky environment, such as the defence, mines, etc., so the premium payment liability is over quickly, and you have coverage when required.
• You have a short career span like those in sports and glamour. Thus, you want to finish off your premium payments during your earning years.
• You are approaching the retirement age. In such a case, you can complete your premium payments during the last few earning years and then enjoy the coverage during your post-retirement phase.
• You have a volatile income, as in the case of freelancers, professionals or business owners. In such cases of irregular cash flows, you can complete your premium payments in limited instalments within a short span during your peak income times.

2. Regular Pay Insurance

Regular pay insurance provides the feature of spreading out costs over a longer time, thus making it more manageable in terms of budget. However, it is more suitable for certain sections of people more than the others. Choose a regular pay insurance if:

• You are a salaried employee. Consistent regular premium payments make this a convenient option for salaried employees who can easily fit it into their budget.
• You are a young earner. You benefit from a lower premium, which is further spread across a regular term that you can carry on while you are working and enjoying the coverage.
• You are a stable earner. If you have a stable income, like an old established business where the income is consistent and predictable, you can opt for regular pay insurance.