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.
In general, there are three frequencies of paying the premiums:
We will focus on limited and regular-pay insurance plans.
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.
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.
|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|
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.
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.
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