Experts are unanimous on one thing. When it comes to buying life insurance, term insurance is the best option. Normally, you buy term insurance for a specific term and pay the premium annually. However, another form of term insurance is limited-pay term insurance.
Limited pay term insurance allows one to pay the premium for a specific and brief duration while enjoying coverage through the entire policy term. This works very well for those who want to provide financial security to their families without the stress of paying the premiums for the entire policy period. “The premium payment term usually varies between five years to 15 years, unlike the regular term plan wherein a premium is paid across the life of the policy. While the annual premium for limited-pay plans is higher than regular plans, the total premium paid over the entire policy term is generally lower,” says Rhishabh Garg, head, term insurance, Policybazaar, an insurance aggregator.
Let’s say a 30-year-old male policyholder opts for a limited-pay term insurance plan with a sum assured of Rs 2 crore. He chooses a premium payment term of 10 years and a policy term of 30 years. In this case, they would pay higher annual premiums for the first 10 years but enjoy life coverage for the remaining 20 years without additional payments.
Should You Opt For It
Limited-pay term insurance is a smart choice for people of all ages, but especially for those who wish to pay premiums early and focus on other goals. “Individuals with high income are better benefited by limited-pay term insurance during specific stages of life, such as during the early or mid-career phase, or for those expecting greater financial obligations in the future. Although the yearly premium for such limited-pay plans is slightly higher compared to regular pay plans, the outgoing premium is still lower at the end,” says Garg.
The limited pay option is ideal for individuals with shorter career spans, those working in unstable job environments, professionals, business owners, or those nearing retirement. On the other hand, regular pay is more suitable for individuals with a stable, fixed income.
