Premium Paying Term

Premium Paying Term (PPT) refers to the period of time during which a policyholder is required to pay a premium for an insurance policy. Buying life insurance can ensure that your loved ones' futures are secure. The insurer charges you a premium for providing you with life insurance. Keeping the plan active requires you to pay the premium for a certain period of time.  In this blog, you will find information about premium paying terms and how they impact policy prices and coverage. 

What is premium paying term?

Insurance companies charge policyholders a premium for their insurance cover. A premium paying term is the period during which a policyholder must make premium payments.
 

Premium payments depend on the type of policy selected and the agreement made at purchase. Depending on the plan, this duration may vary.
 

Policyholders need to understand the premium paying term meaning since it affects their financial responsibility and insurance coverage. Late premium payments can lapse or cancel insurance, leaving the policyholder without coverage.

Importance of premium paying term

PPT are important for the following reasons:
 

• Term plans remain active as long as the premium is paid. It ensures that the protection you've chosen continues for as long as you've planned. Even one missed premium may lead to your policy lapse. This would result in the loss of all coverage.

• For policyholders' convenience, insurers allow them to choose the term and frequency of premium payments. Depending on the policyholder's needs, premium payment terms vary between policies. Furthermore, it is determined by the type of policy, its duration, and other conditions that are attached to it. 

• A life insurance plan's affordability can be affected by the term of the premium payment. If you choose a longer term, you can spread out the premiums over a longer period of time. In addition, if you have a significant amount, a shorter term will enable you to pay off the premiums faster. 

• You must be aware of the terms of premium payments as a policyholder. The policy defines your obligations to the insurer. Moreover, it keeps you disciplined when it comes to paying your premiums.

Types of premium paying terms in term insurance

You can choose the premium payment tenure based on your financial needs and convenience. The commonly available options are explained below with a premium paying term example for each.
 

• Regular premium payment term

  This PPT option allows the policyholder to pay the premiums throughout the policy's duration. For example, 15-year term plans require premium payments for 15 years. You can pay your premiums monthly, quarterly, half-yearly, or annually. An individual with a regular and stable income may consider this option.

• Limited premium payment term

  With this option, premiums are paid over a shorter period, but coverage lasts the full time. For example, a 25-year policy may require 5 years of premiums. The policy stays active after the payments are done. If you're planning an early retirement or a change in income, this plan can be suitable.

• Single premium payment term

  In this option, the entire premium amount must be paid in one lump sum at purchase. It may be more expensive initially, but no payments are required in the future. The policy remains in effect throughout the term of the policy. There may be differences in tax* benefits, so professional advice is recommended. Those with surplus funds or who prefer one-time payments will benefit from this option.

How to choose the right premium paying term?

Selecting the right premium paying term ensures you're getting the right coverage for your long-term goals. You can choose a premium payment period based on the following factors.
 

• Consider the policyholder’s age

  The premium paying term is largely determined by age. Many younger policyholders choose longer payment periods to keep premiums affordable. Individuals who are older may prefer shorter payment terms to minimise their total cost while keeping coverage in line with their budgets.

• Check the policyholder’s income

  Decide based on your income and financial stability. It might be easier to manage a shorter premium payment term if you have a steady income. Longer or more flexible payment terms may be suitable if your income is uncertain.

• Determine the policy duration

  The premium paying term should match policy duration and future goals. Choose a payment term that is aligned with your goals. For long-term coverage, regular premiums or limited premiums work well.

• Consider the premium amount

  Consider your budget before choosing a premium payment plan. Calculating the total premium payable across different terms can help you find the one that works for you. A lump sum or shorter payment period may work for some, while others may prefer longer terms.

• Assess future income expectancy

  You should also take your expected future earnings into account. If your income increases in the future, you may choose a shorter payment term. If income growth is uncertain, choosing a flexible or longer payment term can provide financial security.

Methods to make premium payments in term life insurance

The premium payment options offered by term life insurance plans are flexible, allowing policyholders to choose the method that is suitable to their financial needs. Here are the payment methods available for policyholders.
 

• Annual payments

  Under this option, premiums are paid once a year. It simplifies financial planning and may help reduce overall costs, as some insurers offer discounts for annual payments.

• Semi-annual payments

  Premiums are paid twice a year under this method. It offers a balanced approach by spreading the cost over the year while avoiding the frequency of monthly payments.

• Quarterly payments

  With this option, premiums are paid every three months. The regular payment intervals can make budgeting easier, although it may involve slightly higher administrative effort compared to annual or semi-annual payments.

• Monthly payments

  Premiums are paid in monthly instalments, making this option highly flexible. It aligns well with monthly income cycles and can help policyholders manage their budgets more comfortably.

Things to consider before paying your policy premium

Make sure you're paying for insurance that fits your financial situation. Here's what you need to remember about policy payments:
 

• Constrained budgets

  Properly assess your present financial condition before paying the premium and make sure you can cover all your expenses. If you want to determine the affordability of your premiums, take into account your normal income, monthly expenses, and emergency reserves.

• Consistency in payment

  To determine the optimal payment frequency, consider your cash flow and budgeting options. Decide on a payment frequency based on factors such as administrative ease, convenience, and potential savings.

• Total cost of premiums

  Calculate the total cost of the premium over the chosen payment term. Find the most affordable plan by comparing premium rates for different payment frequencies and periods.

Difference between policy term and premium paying term

Many policyholders often confuse the policy term with the premium payment term. While both are important, they serve different purposes. The points below clearly explain the difference.
 

Conclusion

It's important to understand the premium payment term so you can manage your affordability and plan your finances effectively. Selecting a suitable premium payment structure will ensure that the policy remains active without placing a financial burden on you. Regular, limited, and single premium options are available, so policyholders can align their payments with their income patterns and life objectives. When making financial decisions, it is important to take into account factors such as age, income stability, policy duration, and future earnings potential. Having a premium payment term that is well thought out encourages financial discipline and gives you peace of mind.