The premium is always a heavy point of focus while buying term insurance policy. A premium is the sum that you pay annually in exchange for life coverage. It is essential for your premium to fit into your budget and at the same buy the coverage that you need to financially secure your family. Moreover, it is important to pay premiums as it will help keep the policy active for the long term.
Term insurance is more economical compared to other types of insurance. The premium that you would have to pay for the policy is usually very affordable. However, there is one factor that you need to pay attention to. The mode of premium payment can vary depending on the amount of coverage and the lifestyle you have. Here is a look at the different term insurance premium payment modes.
But what is term insurance? Term insurance is a simple form of life insurance. It provides financial protection to your family at the most affordable rates. With term insurance, you can get a large life cover (i.e. sum assured) at a relatively low premium rate. The benefit amount is paid out to the nominee in case of death of the person insured during the term of the policy.
Term insurance premium payment structures
Here are the premium payment options that insurance companies offer buyers for their policies:
- Regular Pay – In this structure, the duration of premium payment is the same as the duration of the policy. This means the total premium of the policy is equally divided across the term of the policy.
- Limited Pay – In this structure, the term of the policy and the term of premium payment are not the same. The time that you are given to pay the total premium of the policy is much lower than the term of the policy.
- Single Pay – This structure is the simplest yet the most difficult to go through. As per the single pay structure, you can pay the entire premium of the policy in one go. You pay the entire policy term’s worth of premium at the time of buying the policy.
Buying an insurance policy is already a daunting task. Adding to the pressure is having to consider the various aspects of paying premiums. Part of this pressure is the task of choosing the right mode of payment. A term insurance plan calculator can be used to calculate the premiums to be paid ahead of time.
Regular pay
A regular pay is a facility that provides the flexibility to pay the premium for the whole policy tenure. It allows you to choose the amount that you pay annually or monthly. Moreover, it helps you stretch out the premium payment of the tenure of the policy. For instance, if a person has a policy for 30 years, and they pay the entire premium during the term, they end up dividing their total premium amount across the entirety of 30 years.
Limited pay
As mentioned above, this policy allows the policyholder to pay the premiums for a set amount of time, which is less than the term of the policy. The insurance coverage remains unchanged throughout the policy term. It means that eventually, you will complete the premium payment for the policy but the coverage will still be active after that. In limited pay, the premiums are more than the amount of regular pay. There are various payment terms available such as 5 years, 10 years, 15 years. At the same time, the coverage period that people usually go for in term insurance is around 30 years. This ensures that you complete paying your premium at a younger age and then let the policy runs its course.
Which one to choose?
The option of premium payment mode that you select depends on your preference and ability to make payments. Here is when you should choose each of these options:
- When should you opt for limited pay?
If you have enough savings or a cash reserve to keep covering higher premium payments, you should pick the limited pay option. If you have enough money saved, it does not make sense to prolong a payment.
- When should you opt for regular pay?
The regular pay option is a great choice for people who are either salaried or self-employed and aim to save some money for their retirement and other financial goals. Making smaller premium payments over a longer time spares them enough money to save or invest in other financial tools.
Term insurance policies are usually purchased depending on the needs of the customer. Nowadays with online term plans, you can always have all this data at your fingertips to make a well-informed decision. Before making a selection on the premium payment mode, it is important to analyse the various features and benefits of the plan.
