Life insurance is often one of the most important investments you ever make as it enables you to ensure that your family and loved ones are taken care of even when you are no longer around.
Term insurance is the most popular kind of life insurance plan out there because it simplifies the terms of the insurance and offers the maximum advantages.
However, even among term insurance plans, there are several different kinds of term insurance available. For the most part, these term insurance plans differ on the regularity and frequency of payment involved. Read below to learn the different kinds of term insurance plans available.
Limited Pay vs Regular Pay Term Insurance
1. Limited Pay
In this term insurance plan, the duration for the payment of premiums is lesser than the duration of the life cover available.
2. Regular Pay
In this term insurance plan, the duration for the payment of premiums is the same as the term of the policy.
There are other kinds of term insurance plans, such as single pay term insurance, wherein the premium payment can be a one-time lump sum payment. However, for conciseness, we are only talking about limited pay and regular pay term insurance in this article.
Limited Pay Term Insurance
As mentioned earlier, the premium payment duration is lesser than the duration of the life cover. With this kind of term insurance, you are required to make recurring payments but only for a predetermined limited period of time.
Though the duration of payments is lower than the duration of the life cover itself, the life cover remains intact.
Regular Pay Term Insurance
Under this term insurance plan, you are required to make premium payments periodically throughout the duration of the policy. You can choose for yourself the duration of payment, from among monthly, half-yearly, or yearly options.
Differences between Limited Pay and Regular Pay Term Insurance
|Regular Pay Term Insurance||Limited Pay Term Insurance|
|Duration for Premium Payment||Longer than limited pay term insurance, as the duration lasts throughout the policy period.||Shorter than the policy term and as compared to regular pay term insurance.|
|Coverage||Full coverage is offered with the term insurance, but getting extended coverage post retirement can prove difficult.||Limited pay term insurance offers longer coverage post-retirement and ensures coverage till the end of the policy term.|
|Flexibility||Policyholders can get adjusted value if they surrender the policy abruptly and suffer no losses.||If the policyholder abruptly terminates the policy, they do not get any benefits.|
|Financial Burden||The burden of the payment is spread out evenly over the payment duration.||The entire burden of the payment is concentrated within one time period, so can prove more expensive at the time of payment.|
|Cost of Premium||The premium payment amounts are higher with this kind of term insurance plan.||
The premium payment amounts are lesser as compared to a regular pay term insurance plan.
How To Choose The Right Term Premium Payment Option?
For the most part, the difference in making the choice between regular pay term insurance and limited pay term insurance arise from the stage of life you are at and your ability to make premium payments.
You should opt for a limited pay term insurance plan if:
- You are unsure of your ability to pay in the future and have a short career span, such as in sports
- If you work in work environments that can be unpredictable, such as in the armed forces
- You are a business owner or a professional whose personal income fluctuates from time to time
- You are close to your retirement age but require coverage up to a higher age bracket.
Alternatively, you should opt for a regular pay term insurance if you have a regular fixed income and will be able to make the premium payments over a period of time.
If you are a salaried employee at a company and earn a fixed amount of money at regular intervals, it would be much more viable for you to opt for a regular pay term insurance.
The role of technology is to make decision-making more effective, which is why one should consider using technology to compare the best plans that are available online.
Regardless of which kind you choose, make sure to buy a term insurance plan from a reliable source, where you can avail the best and most comprehensive plans at the lowest premiums.
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Author: Tom Eastwood