Term Insurance-Limited Pay Vs Regular Pay

Term insurance is a type of life insurance that provides coverage for a specified period, known as the “term.” There are two primary payment options for term insurance: Limited Pay and Regular Pay.

Limited Pay Term Insurance:

Limited Pay term insurance offers coverage for a specific period, but the premium payments are made for a shorter duration than the overall term. In other words, you pay premiums for a limited number of years, and once those premium payments are completed, the insurance coverage remains in force for the entire term without the need for further premium payments.

For example, you might have a 20-year limited pay term insurance policy where you make premium payments for only 10 years. After the 10-year premium payment period, the coverage remains in effect for the remaining 10 years without requiring any additional premiums.

Regular Pay Term Insurance:

Regular Pay term insurance, on the other hand, requires you to pay premiums throughout the entire term of the policy. Premiums are typically spread evenly over each year of the policy term. The coverage remains active as long as you continue to pay the premiums on time.

For example, if you have a 20-year regular pay term insurance policy, you will pay premiums every year for the entire 20-year duration to maintain coverage.

Comparison:

Premium Payments

The key difference between Limited Pay and Regular Pay term insurance is the duration of premium payments. Limited Pay requires premiums to be paid for a shorter period, while Regular Pay requires premiums to be paid throughout the entire term.

Total Cost

Since Limited Pay policies have shorter premium payment periods, the total cost of the insurance (sum of all premiums paid) is typically higher than Regular Pay policies. Regular Pay spreads the premiums over a more extended period, making it a more cost-effective option in the long run.

Benefit

Both types of term insurance provide a death benefit to the beneficiaries if the insured passes away during the term of the policy, as long as the premiums are paid up-to-date.

Flexibility

Limited Pay can be beneficial if you want to have coverage for a specific period without having to worry about premiums later in life. Regular Pay provides consistent coverage but may be a better choice for those seeking lower premium amounts each year.

EndNote

The choice between Limited Pay and Regular Pay term insurance depends on your financial situation, budget, and the specific coverage duration you require. It’s essential to compare different policies and consult with a financial advisor or insurance agent to determine the best option for your needs.

Read more term insurance articles on Family Raksha.