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Limited and regular pay are different options available under an insurance policy. A policy buyer has the freedom to choose their premium payment frequency as per their financial horizon. While some people may find it easier to pay the premiums regularly every month, some may find it easier to pay it in one go.
Different life insurance plans offer various unique features. Flexibility in premium paying frequency is one of the important features that help to form your decision of buying the policy.
Key Takeaways
Limited pay policies allow you to pay premiums for a shorter duration, while the coverage remains active for the full policy term.
Regular pay requires you to pay premiums throughout the entire policy term, making it more suitable for individuals with stable incomes.
Limited pay plans often have higher premiums but reduce long-term payment obligations, offering peace of mind post-retirement.
Regular pay plans may offer lower premium amounts per instalment but increase the chances of payment default over the long term.
Limited pay plans may offer discounts or rewards due to the shorter payment duration, unlike regular pay options.
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In general, there are three frequencies of paying the premiums:
Limited Pay
Regular Pay
Single Pay
We will focus on limited and regular-pay insurance plans.
Limited Pay
With limited premium payment option, you make regular payments, however, the payment term is limited or pre-specified. The payment term will be less than the policy term. However, the policy will stay in-force till the term completion.
The shorter your premium payment term, the higher the premium will be. However, there are various benefits of limited premium payment term. For example, you pay for the policy till retirement but the cover continues several years after retirement.
Regular Pay
In this option, your premium payment term is equal to the policy term. You can choose the frequency of the payment. Life insurers offer monthly, quarterly, bi-annual, and annual frequency of payment.
Did You Know?
Limited pay insurance plans are especially popular among high-net-worth individuals who prefer to complete payments early and stay insured for life.
Key Differences between Limited Pay and Regular Pay
Features
Limited Premium Pay
Regular Premium Pay
Duration
Shorter. Pre-defined period
Longer. Lasting throughout the policy term
Coverage
Continues till policy term
Continues till policy term, however, subjected to regular premium payment
Chances of Default
Probability of defaulting on the premium payment is low as the payment frequency is limited
Chances of defaulting is high as you have to pay the premiums till the policy term
Cost of Premium
As you pay the premiums before the policy term within limited window, the chances of premiums increasing due to age is low
Premiums may increase with time
Financial Burden
Burden is limited to a specific window
Financial stress is spread across the policy term
Rewards and Discounts
As premiums are paid within a limited window, there is a chance of getting some discount on the premium
Offers no discounts and rewards, mostly
The primary benefit of limited premium pay option is that it frees you from paying premiums for your insurance plan for a long period. You only have to pay the premiums for a limited, pre-decided tenure while your plan keeps running for longer.
A limited pay insurance plan allows you to pay the premium within a limited period. For example, you buy an insurance policy that allows you to choose a premium payment term of 5, 10, or 15 years. You chose to pay the premiums within 5 years by making regular monthly payments. The entire premium amount will be spread across the 5 years over each month.
Which Premium Payment Option should you Choose?
You may want to continue your life cover past your retirement. This is beneficial if you have loans, dependent family members to look after in the post-retirement period. In such a case, pay till retirement is a wise financial decision.
However, if you are self-employed and have a cyclical income, you will be better off with limited or even single premium payment option. You can choose limited pay option so that your payment obligation is for a short period only.
If you are a salaried professional who has a steady stream of income, you may choose regular premium pay option. It gives you a buffer to manage your finances.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.
Glossary
Limited Pay: Premiums are paid for a shorter term, but the policy coverage continues for the full duration.
Regular Pay: Premiums are paid throughout the policy term based on the chosen frequency.
Policy Term: The period during which the life insurance policy remains active and provides coverage.
Premium Frequency: The interval at which insurance premiums are paid, could be monthly, quarterly, annually, etc.
Premium Default: Failure to pay scheduled premiums, which may lead to lapse of policy coverage.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
