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Life insurance policies offer several unique features to make the plan more convenient for you. One such feature is the mode of premium payment. Typically, there are two types of premium modes – regular and limited. Each has its advantages and disadvantages, and the ultimate choice between the two premium modes depends on your financial situation, life stage, and monetary goals.
Here is everything you should about limited and regular pay insurance plan and their differences:
What are the limited pay insurance plans?
These insurance policies allow you to pay premiums only for a specific pre-agreed period, post which you are not liable to pay anything. However, the policy continues for the full term, irrespective of the premium duration. In such insurance policies, the premium payment term is less than the policy tenure.
For example; X buys a limited pay insurance policy at the age of 40 for 20 years. He expects to pay all premiums in his working years and wishes to retire (at 55 years) without any financial burden. He opts to pay premiums only until the age of 50. But he will get an insurance cover up till the age of 60.
What are regular pay insurance plans?
A regular pay insurance plan is an insurance policy where the premium payment term and policy tenure are the same. You pay premiums for the entire policy duration and enjoy protection for the whole insurance term.
For example; Y is 40 years old and owns a small business and can manage regular premium payments. He takes a regular pay insurance plan for 20 years and pays premiums throughout the term (60 years) while enjoying insurance protection until 60 years.
What is the difference between limited and regular pay insurance?
|Limited Pay||Regular Pay|
|Shorter premium payment period||Longer premium payment period|
|Full coverage for the entire policy period irrespective of limited premium tenure.||Full coverage for the entire policy period, subject to regular and timely premium payments.|
|Low chances of policy lapse due to the short payment period||Higher chances of policy lapse due to a longer payment period.|
|Financial burden is distributed in a shorter time period.||Financial burden is distributed across a larger span of time.|
|More financially burdening since premium out-flow is concentrated.||Less financially burdening since premium out-flow is spread.|
|No risk of premiums rising since premiums are paid out in a specific time.||Risk of premiums rising with age.|
|Potential rewards and discounts offered because of the advance premium payment||No potential discounts or rewards.|
|Premiums are paid off before retirement or a specific milestone.||Premiums continue till the end of the policy term.|
|Maximum tax benefits can be reaped in the limited payment schedule under Section 80C.||Tax benefits are spread across the entire life insurance policy period.|
How to choose between the two?
The ultimate choice between a limited and regular pay insurance plan depends on your financial situation, existing liabilities, future plans, retirement age, etc. However, a limited pay option is more suitable for short career span people like sportspersons, etc., or those who work on commissions, bonuses, or under uncertain work conditions like army personnel. Moreover, those that are closer to retirement can also consider a limited insurance plan. Alternatively, people with fixed income sources, limited budgets, or those far from retirement, can opt for a regular premium payment option.
In addition to selecting the right premium payment mode, be sure to choose the right insurer first. Check different life insurance plans plans offered by Kotak Lifewith flexible premium options, economical premiums and competitive features, and make a smart choice.
- A Consumer Education Initiative series by Kotak Life
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