When you buy term insurance online, you will have various options. Among them, an important one is the premium payment mode. You can either choose a regular or limited premium payment option, depending on aspects such as your liabilities, income, and life goals. If you want to understand how to pick the right premium payment alternative, read on.
What is limited pay?
The online term policy with a limited pay option allows you to pay the premium for a fixed period, which is always shorter than the policy term. In the case of a limited pay alternative, you can choose the payment tenure while purchasing the policy. Once the payment cycle is over, you will not have to pay anything more during the remaining policy tenure but will get the full benefit when your nominees make a claim.
Example of a limited premium payment choice
Shubham is aged 40, and he decides to buy a term policy to ensure the financial security of his wife and two children. The policy term is 20 years, but he chooses to pay limited premiums for ten years. Hence, he will have to pay the premium until he turns 50, but the term policy will stay active for 20 years, which means until he reaches the age of 60.
What is regular pay?
The regular pay option requires you to pay the premium for the whole duration of your policy. In this option, the policy tenure and the payment cycle are equal. The insurer will only offer you the benefit if you continue to pay the premium timely. Failing to do so will lead to a discontinued term plan.
Example of a regular premium payment term
Rashmi is currently aged 30 and married with one child. She finds out about the term insurance tax benefit, nominal premium, and considerable sum assured from a friend. Hence, she buys the policy with a regular payment option for 20 years. This means she will have to pay a regular premium for the same duration to keep the policy active.
Comparison between limited and regular payment options
| Limited premium pay option | Regular premium pay option |
| Shorter payment tenure than the policy term | Long-term premium payment duration equal to the policy tenure |
| Limited possibility of policy lapse due to a shorter premium payment cycle | Greater possibility of lapse because of a higher number of premium payments |
| The policy offers full coverage even though the payment cycle is short | The insurer offers the cover only if you pay the premiums during the entire tenure |
| The financial liability is for a limited time | The financial liability continues for years until the policy’s tenure |
| Under Section 80C of the Income Tax Act, 1961, you can get a maximum term insurance tax benefit | The tax-deduction is limited and divided across the policy tenure |
| This option helps to save heavily on premiums due to advance payments | There are no discounts for regular premium payments |
How to select the premium payment mode
Depending on your financial condition and personal preferences, you can choose between limited and regular premium payment options. The limited pay alternative is perfect if you are not confident about paying the premium for the long term, do not have a stable income, or only have a short time until retirement. If you have the discipline to pay a long-term premium, have a source of steady income, or have many years until retirement, a regular premium payment method might suit you more.
You can select your preferred payment mode while purchasing an online term policy, once you have made up your mind.