Switch to the Simpler Insurance
Switch to the Simpler Insurance
Hi There, We are working on our product and launching this soon.
Enter your Details
Submit your details and we will notify you once we launch our Product.
Hello, our Product is launching soon. Please share your details, and we will notify you once we are live.
What is Limited Pay vs Regular Pay in Term Insurance?
When it comes to term insurance, one of the most critical factors in decision making is the premium. However, it’s not just the amount of premium, but the mode of payment too that contributes to the affordability of a term plan.
Understanding the different modes of premium payment and the nuances between them is essential for people seeking tailored insurance solutions that align with their long-term financial goals and investment strategy.
What is a Premium Payment Mode?
Before comparing the modes, lets first understand what a premium payment mode in insurance is!
A premium payment mode in insurance is the schedule of payments according to which policyholders make payments toward their insurance premiums. They can choose the mode that aligns with their financial preferences and budget.
It is different from payment frequency that indicates in how many instalments the premium is paid annually. It can be monthly, quarterly, half yearly or annually for limited as well as regular payment mode.
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.
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 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 to spread the cost of insurance over a period, making it a feasible and more manageable solution.
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.
A 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.
Single Pay Term Insurance
As the name suggests, single pay is a one-time lumpsum 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 done at one go, the total cost of insurance is considerably low as 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 what the differences between regular pay and limited pay are.
What is the Difference Between Regular Pay and Limited Pay Term Insurance?
There are some major differences between a regular pay insurance and a limited pay insurance. Let’s have a look:
| Point of Difference | Regular Pay | Limited Pay |
| Premium Payment Duration | For the entire term of the policy. | Fixed premium payments for a shorter and limited duration, much lesser than the tenure of the policy. |
| Coverage | The premium payment term and policy term is equal. Hence coverage continues if the premiums are paid. | The coverage continues after the limited premium payment term, to complete the policy tenure. |
| Advantage of Duration | Provides the advantage of completing the premium payment liability within a short duration. | Provides the advantage of spreading the cost over a longer tenure, thus aligning it with the budget. |
| Total Cost | The overall cost in regular pay is higher since it is spread over a longer duration. | The overall cost in limited pay tends to be lower since the premiums are paid in advance within a short duration. |
| Per Premium Amount | Higher premium amount per pay because of limited payments. | Lower premium amount per pay since the instalments are spread out over a longer duration. |
| Tax Benefit | Tax Benefit on the premium paid, under section 80C is distributed across the total policy tenure. | Tax Benefit on premium, under 80C is maximised for the limited number of years when the premium is paid. |
How to Choose the Right Premium Payment Option?
1. Limited Pay Insurance
The most important feature of a limited pay insurance is the fact that the liability of premium payments is restricted to a shorter span of time. Thus, choose a limited pay insurance if:
- You are working in an unpredictable and risky environment like the defence, mines etc., so that the premium payment liability is over in a short span, and you have coverage when it is 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 cost 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. The consistency in regular premium payments, makes this a convenient option for salaried employees who can easily fit it in their budget.
- You are a young earner. You get the benefit of lower premium, which is further spread across a regular term that you can carry on while you are working and enjoy the coverage.
- You are a stable earner. If you have a stable income like old established business where the income is consistent and predictable, you can opt for regular pay insurance.
Apart from the above two modes of premium payment, you can choose a single premium pay in case you have surplus funds available.
Selecting the right premium payment term is important for maintaining a healthy investment basket. The choice between the different modes ultimately hinges on individual financial goals and preferences hence understanding one's financial capabilities and long-term objectives is crucial in making an informed decision.
Frequently Asked Questions
Does the Choice Between Regular Pay and Limited Pay Affect the Life Cover?
Is there Any Flexibility Advantage in Choosing Limited Pay Over Regular Pay?
Other Important Term Insurance Guides
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.