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Features
Ref. No. KLI/22-23/E-BB/492
Understanding the difference between policy term and premium paying term is crucial when you are buying life insurance. Many people tend to get confused between the two, but they are not the same. Policy term refers to the duration for which the insurance coverage lasts, while premium paying term (PPT) is the period for which you need to pay premiums. Choosing the right combination of these terms ensures you get the best out of your term insurance policy
Insurance plans nowadays have become a necessity if you want to protect your loved ones’ financial future. But before you make these crucial decisions, you must have clarity on the various factors associated with these plans.
Insurance policies come with different timeframes for coverage and payments. The policy term vs premium paying term debate is common among new buyers. Policy term refers to the total duration for which your insurance policy remains active. Whereas, the premium paying term is the period during which you are required to pay premiums.
These two terms may or may not be the same, depending on the type of plan you choose. Let us understand them in detail.
The policy term is the duration for which your life insurance policy provides coverage. It can range from a few years, like 5 or 10 years, to several decades, depending on the plan you choose. For term insurance, the policy only covers death that occurs within this period; if the policy term ends and the insured is still alive, no payout is given.
However, in savings-oriented plans like endowment policies, a maturity benefit is provided if the policyholder survives the policy term. To ensure your coverage remains active throughout the term, you have to ensure regular premium payments. Understanding your policy term helps you make informed decisions about long-term financial security.
The premium paying term (PPT) is the number of years or the period during which you are required to pay premiums to keep the policy active. This duration can differ depending on the plan you choose but there are mostly these three types:
The premium paying term vs policy term concept is essential when selecting a plan that fits your financial planning.
Now that you have a decent understanding of both these terms, let us take a closer look at the difference between policy term and premium paying term through this table:
| Feature | Policy Term | Premium Paying Term |
|---|---|---|
| Definition | Duration for which the insurance coverage is active | Duration for which premiums need to be paid |
| Duration | Can be long (10-40 years) | Can be shorter or equal to the policy term |
| Payment | No premium payment is required after the premium paying term ends (in some cases) | Premiums must be paid during the premium paying term to keep the policy active |
| Example | 30-year term insurance coverage | Pay premiums for only 10 years (in limited pay) |
The policy term plays a crucial role in deciding the financial security and benefits of term insurance.
Choosing the right policy term helps align your insurance plan with your financial goals, ensuring uninterrupted support for your loved ones. A long-term policy with a shorter premium paying term can ease your financial burden later in life.
Selecting the right premium paying term (PPT) depends on your financial situation and long-term planning. Here are some tips that will help you decide:
Choosing wisely helps maintain financial stability while ensuring adequate insurance coverage so make sure to make a well-thought out decision!
Understanding the difference between policy term and premium paying term is fundamental to choosing the right insurance plan. While the policy term determines how long you stay covered, the premium paying term decides how long you pay for that coverage. By selecting the right combination, you can get the best financial protection without unnecessary stress. Always compare different term insurance plans and choose what suits your financial needs best!
1
The policy term is the total number of years for which your life insurance provides coverage. For example, if you buy a 20-year policy term, your insurance will protect you for 20 years.
2
The premium paying term (PPT) is the number of years you need to pay premiums to keep the policy active. It can be equal to or shorter than the policy term.
3
The policy term is the duration of coverage, while the premium paying term is the duration for which you need to pay premiums. For example, you may choose a 30-year policy term but opt for a 10-year PPT (limited pay option).
4
Yes, in limited pay and single pay options, you can complete the premium payments early while still enjoying full coverage for the entire policy term.
5
If your PPT ends before the policy term, your coverage continues without requiring further payments. Your family will still receive the death benefit if something happens to you during the policy term.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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