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Limited Pay vs Regular Pay Term Insurance Premium

02-08-2022 |

Purchasing term life insurance is an effective method to ensure financial protection for your family in the event of your unexpected death. You must analyse your financial condition and decide on the appropriate coverage to ascertain the required financial support at any time.

 

The sum assured in the term life insurance plan depends on the premium payment and the policy tenure. There are two different methods of making the life insurance premium payment, the limited payment method and the regular payment method. Understanding the differences is important to realise the benefits.

 

Here is a detail about the term insurance limited pay vs regular pay.

 

 

What is the Limited Premium Payment in Term Insurance?

 

A limited payment method in term insurance allows you to pay the premium for the entire policy tenure for a limited term. However, while you complete paying the entire premium during the limited term, the life coverage benefits remain unaffected for the entire policy tenure.

Therefore, when you choose the limited-term premium payment option, you pay off the applicable premium well before the term plan tenure ends. And, irrespective of the premium payment term, the life cover benefit of the life term plan is always applicable during the policy tenure.

 

For example, let us assume Mr Ram purchases a term plan for 20 years of policy tenure and chooses a limited premium payment duration of 10 years. Therefore, Mr Ram will pay off the premium in the first 10 years of the policy tenure while ensuring the benefits for another 10 years.

 

 

What is the Regular Premium Payment Term in Term Insurance?

 

 

Regular premium payment is the most common payment method for paying the premium in a term plan. In the regular payment method, you will pay the premium for the entire duration of the policy tenure. Therefore, the life insurance premium payment duration is equal to the policy tenure.

 

Considering the above example, if Mr Ram opts for the regular pay option, he will pay the premium for the entire policy tenure of 20 years to ensure the life-cover benefits.

Now that we have understood the meaning of limited pay and regular pay in term insurance let us discuss the difference between them to help you make the right choice.

 

 

Limited Pay Vs Regular Pay Term Insurance
 

Let us consider a few important factors to distinguish between the two options.

 

Factors

Limited Pay

Regular Pay

Premium payment duration

You will pay the premium for a specific limited duration.

You will pay the premium for the entire policy duration.

Life coverage

Life coverage extends for the entire policy duration, not just the limited payment term.

Life coverage extends for the policy tenure, equal to the premium payment term.

Premium rate

The premium will be more as it is restricted to the limited pay duration.

The premium will be lesser as it is spread across the entire policy tenure.

Chances of default

As the premium payment term is limited, the chances of default are less.

As the premium payment term is for the entire policy tenure, it is subject to default considering the affordability throughout the term.

 

 

How to Choose the Best Option?

 

The choice of the premium payment term will depend on certain factors. Here is a detail about it for your understanding.

  • If you have a steady flow of income and can afford to pay the premium for the entire policy tenure of the term plan, you can opt for the regular pay option.
  • If you have decided to purchase the term plan early in life, you can choose a longer policy tenure and reduce the premium rate to make it extremely affordable. In that way, you can choose the regular pay option and keep paying the premium till the end of the policy tenure.
  • If you plan to retire early and would like to complete paying the premium before your retirement, then the limited premium paying term policies are ideal.
  • If you are in a work environment that does not earn the required income and so you decide to complete your financial obligations and lead a stress-free life, the limited pay option is a fair deal.
  • The premium you pay for the term plan will qualify for a tax* deduction under Section 80C of the Income Tax Act, 1961. The regular pay option is a better choice if you want to spread the tax* benefits through the policy tenure.

 

Our Tata AIA life insurance company provides flexible premium payment options such as limited and regular pay. Using our online term insurance premium calculator, you can compare the benefits and decide on the option based on your affordability and the policy tenure. You can pay the premium monthly, quarterly, semi-annually or annually.

 

 

Conclusion

 

Purchasing a term plan is an important financial initiative that protects your family in the event of your unexpected demise. Ensuring the affordability of the premium and the mode of payment is important to ensure the benefits are timely. Insurers provide limited pay and regular pay options for making premium payments.

 

While in a regular payment option, you pay the premium throughout the policy tenure, in a limited pay option, you make the payment for a specific duration of the policy tenure. However, the life coverage benefits apply to both options throughout the policy tenure. Therefore, understand your financial status, steady flow of income and family financial commitments to decide the best premium payment method for your term insurance plan.

 

L&C/Advt/2022/Jul/1706

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Need more information?

Let us help you

TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

Looking to get a new plan? 

Connect with us now

+91

TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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What is Insurance? Learn its Mechanism and Guiding Principles
Read More
Why the 20s are Considered a Good Time to Buy Term Insurance?
Read More
What Can Term Insurance Offer to Different Age Groups?
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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA), Tata AIA Life Insurance is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

 

Which is the best premium payment method, limited pay or regular pay?

Both premium payment methods have their specific advantages. The appropriate option and the choice of the premium payment method will depend on your financial condition, the flow of income and other family financial commitments that can affect your affordability.

Do the tax* benefits differ for the limited and regular payment options?

The tax* benefits apply to the limited term for which you pay the premium and the entire policy tenure for the regular pay. The annual premium will qualify for the tax* deduction under Section 80C of the Income Tax Act, 1961.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

Need more information?

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

Looking to get a new plan? 

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.