Payment Options in Term Plan? Limited Pay vs Regular Pay

Payment Options in Term Plan? Limited Pay vs Regular Pay

It is important for an individual or family to open the door to financial security. In a world full of unprecedented possibilities, no one can predict the final destination of a life. Therefore, it is essential for the breadwinners to ensure a happy future for their dependents or family by investing in term insurance. 

What is a Term Insurance Plan?

Term Insurance is a form of life insurance product which offers financial protection to the dependent or a family at affordable rates. The term insurance provides a large or significant amount of life cover at the maturity of the policy. The premium of a term insurance plan is relatively low compared to other life insurance products. The benefit of such a plan is paid out to the nominee in case of the demise of the policyholder. 

Read More: What is a Term Insurance Plan

Premium Options in Term Insurance

Term insurance allows an individual or policyholder to pay the premium amount in different ways. The policyholder may choose from the options which best suit his financial situation. The options offered in term insurance include the following. 

  • Regular Pay
  • Limited Pay
  • Single Pay

Let us discuss the definition of each pay mentioned above.

  • Regular Pay: In regular pay, the policyholder is required to make consistent payments of premium till the end of the policy term. Therefore, if the policy term is 20 years, the policyholder is required to pay the premium throughout the entire term.
  • Limited Pay: The policyholder is required to pay the premium for a limited or specified period of a policy term. However, the policyholder shall continue receiving the coverage throughout the policy term. For instance, Mr A subscribes to the term insurance and chooses limited pay to allocate the premium. The policy term is 20 years. However, Mr A is required to pay the premium for 10 years. Mr A shall continue receiving the coverage beyond 10 years. 
  • Single Pay: Under the single pay option, the policyholder is required to pay the premium at the beginning of the policy. The policy shall provide coverage for the specified term. 

Regular Pay Term Insurance

Under regular pay term insurance, the policyholder pays the premium throughout the entire term of the policy. The policyholder is obligated to make the premium payment on a monthly, quarterly or annual basis. It is expected to allocate the premium amount until the termination of the policy. 

The regular pay policy is considered as flexible. The policyholder may spread the premium for an extended period. This makes the policy more affordable for the families and policyholders. 

The Regular Pay Term includes many key features and benefits.

Let us discuss the features of the regular pay term. 

Features
  • Consistent Payment of Premium: Under the regular pay term plan, the policyholder is required to make payment of premium at regular intervals. The interval period can be monthly, quarterly or annually. The policyholder may pay the premium throughout the entire term of the policy. 
  • Flexibility: The regular pay term plan is a flexible one. The policyholder may divide the cost of the premium over a long period. Hence, this makes the plan more affordable. 
Benefits of Regular Pay Term Plan
  • Affordable Plan: The regular pay term plan is affordable for a middle-class individual. It allows the policyholder to spread the premium over the term of the plan. Therefore, the policyholder may fulfil the financial commitment under this premium option.
  • Flexibility: The policyholder may extend the coverage of the policy beyond its term. Some regular pay term insurance allows the policyholder to extend the policy in order to avail the continued protection according to the terms and conditions of the plan. 

Limited Pay Term Insurance

Limited pay term insurance allows the insured to pay the premium for a specified period. The policyholder is expected to pay the premium of the entire policy term in a limited period. Upon payment of the entire premium amount, the life coverage and its benefit shall remain in force for the entire tenure of the policy. 

Hence, when an individual chooses a limited pay term, he pays off the premium before the end of the policy term. It further allows the policyholder to meet other expenses upon completion of the premium amount. 

Conclusion

The policyholder must select the right and wise premium payment option while purchasing the term insurance. One may choose among the three aforementioned options in order to pay the premium of the policy. Therefore, the policyholder must understand these options in their entirety.

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FAQs

Q. What are the criteria to be fulfilled by the policyholder in order to avail the coverage of a regular pay term plan?

A. The policyholder must be consistent in making the payment of the premium. He is expected to allocate the premium amount throughout the policy tenure. Hence, he must not discontinue in allocating the premium amount. 

On top of that, the regular premium amount is more than the limited pay. Hence, the policyholder must consider this factor before stepping into the plan. 

Q. What are the key differences between Regular Pay and Limited Pay?

A. Let us draw the differences between Regular Pay and Limited Pay.

Basis Regular Pay Limited Pay
Duration The policyholder is required to pay the premium throughout the term of the policy. The duration of limited pay is shorter as compared to the regular pay. The policyholder pays the premium for a specified period.
Coverage The coverage continues till the policyholder pays the premium. The coverage continues even after the premium of payment.
Premium Premium increases with the age of the policyholder. Premium is static. It does not increase or decrease with the age of the policyholder.
Q. What benefits one may enjoy by choosing limited pay?

A. The primary benefit that one may avail of by choosing limited pay is the emancipation from paying premiums for a long period. Unlike regular pay, limited pay allows the policyholder to pay the premium for a limited period of time. However, the coverage shall be provided for the entire tenure.

Q. What is single pay?

A. Single pay is a one-time payment of premium which is done by the policyholder at the beginning of the policy.

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