What is term insurance?
Simply put, a term insurance plan is a type of a life insurance plan. When you purchase a term insurance policy, the insurer provides you with a life cover for a specific tenure of your choice. In return, the insurer charges periodic payments known as premiums. In the event of your unfortunate demise during the tenure of the plan, the insurer disburses a certain sum of money to your nominees/beneficiaries. This is known as the death benefit.
The premiums of a term insurance plan are lower when compared to other traditional life insurance products because term insurance is a pure life cover. So, now that we have the term insurance meaning out of the way, let us look at another important phrase related to term insurance plans - the premium payment term.
What is the premium payment term?
In layman terms, the premium payment term is simply the period or the tenure over which you pay the insurer premiums for the life cover you purchase. In other words, the entire duration for which you are obligated to pay premiums to the insurer is known as the premium paying term or the premium payment term.
This is not to be confused with the policy term. The policy term is the entire duration for which you get to enjoy the benefits of term life insurance. In other words, it is the period over which the life cover offered by the plan remains in place.
Let us look at an example to understand this well. For instance, let us assume that you opt for a term insurance plan that offers you a life cover for a period of 30 years. Here, the 30-year period is the policy term. Usually, in the case of a majority of term life insurance plans, the premium paying term is often the same as the policy term. So, you would be required to pay premiums for the plan for 30 years.
What is a Limited Premium Payment Term in Term Insurance?
A limited premium payment term plan is a type of term insurance plan that allows you to pay all your premiums within a shorter, pre-decided period, while your life cover continues for the full policy term. This structure is quite helpful if you want to complete all your financial commitments while you’re actively earning and enjoy peace of mind in later years without worrying about premium deadlines.
How Limited Pay Works
In a limited premium payment term plan, you can choose to pay premiums for a fixed, shorter period that is less than the tenure of the policy. Once your chosen premium payment term ends, you don’t have to make any further payments and your term insurance coverage continues for the entire duration of the policy.
- Premium payment term ends before policy term : You only need to pay the premium for the premium payment term that you select at the time of purchase. Your life coverage continues until the end of the policy term.
- Higher annual premium, shorter commitment : Annual premiums may be higher than regular plans because the payments are compressed into fewer years.
- Helps with financial planning : You can plan payments around your active earning years and stay worry-free.
Example of Limited Premium Term Plan
Let’s say Rohit, aged 30, buys term insurance with a limited pay option with a 30-year policy term. His policy offers life cover till age 60, but he chooses a premium payment term of 10 years. This means he will pay premiums only for the first 10 years, and his life cover will remain active for the entire policy tenure.
As the premium payment term is shorter, the premium amount will be higher than what it would be if he had chosen to pay for the full 30 years. However, once Rohit completes the 10-year premium payment period, he does not have to pay any further premiums, and his policy continues to protect his family for the remaining 20 years.
Benefits of Limited Premium Payment Term in Term Insurance
There are many reasons why choosing a limited pay term insurance can be a wise choice. It supports long-term life goals, particularly when income is time-bound or uncertain.
Short Premium Payment Term
In the limited premium payment term plan, you can choose to pay premiums for a shorter duration than the total policy term. Let’s say you are 40 and plan to retire at 55. Instead of paying premiums for the entire 25-year policy term, you choose a limited premium payment option with a payment period of just 10 years. This means you’ll finish all your premium payments by age 50—five years before retirement—while continuing to enjoy life cover till the end of the policy term i.e the remaining 15 years without any further payments.
Minimizes the Chances of the Policy Lapsing
Paying premiums over a long time may have the chance of missing payments if you face money problems later in life. But by completing premium payments during your active earning years, you reduce the financial burden in your retirement phase and continue enjoying the policy coverage without worrying about your policy lapsing due to missed payments.
Maximize Tax Savings Under Section 80C
A limited premium payment term plan allows you to make the most of the tax deductions available under Section 80C of the Income Tax Act (old tax regime). Usually, the annual premium for a regular term plan may not always reach the maximum deduction limit of ₹1.5 lakh allowed under this section, in case of old tax regime. However, with a limited payment term plan, the premiums are generally higher because you’re completing your payments in a shorter period, and you’re more likely to hit the ₹1.5 lakh deduction cap each year. Once you’ve completed your premium payments, you can redirect your tax-saving efforts to other investments while your policy coverage continues.
Better for Retirement Planning
Once you retire, you don’t want to worry about premium deadlines. Limited pay policies let you get that out of the way early. Your retirement budget stays intact, and your coverage continues. This structure blends very well with long-term retirement planning goals.
Important Features of Limited Pay Term Plan
Limited premium payment term plans allow you to complete premium payments in a duration shorter than the policy term, while coverage continues for the full policy term.
Short Payment Periods
A limited payment term plan allows you to pay premiums for a shorter duration than your policy term, and you can align your payments with different life stages. For instance, you might choose to complete all payments before taking on large expenses like a home loan or retirement, while your policy coverage remains active well beyond that.
Limited Pay Term Insurance Limitation
Since premiums are paid over a shorter period, individual payments tend to be higher, which can put considerable pressure on your finances. This increased premium outgo may be difficult to manage, especially for those with irregular or fluctuating income, making it challenging to keep up with payments during some months. Careful budgeting and planning are essential to avoid financial strain.
Conclusion
Given these benefits, you will no doubt find limited premium payment term plans useful in many ways. If you have not purchased a term plan yet, you may consider making this smart decision and secure your family’s financial future, so they can keep up with their life goals on track no matter what.
FAQs
How does a limited premium term differ from a regular premium term?
In a regular premium payment term plan, you pay premiums for the entire duration of the policy; however, in a limited premium payment term plan, you pay only for a limited number of years, but your life cover continues for the entire policy term.
Is the premium amount higher in limited premium payment plans?
The premium you pay in a limited premium payment plan may be higher than in regular pay plans. This is simply because the total premium amount is spread over a shorter payment period. However, this structure can be easier to manage financially, especially if you have a limited working window or aim to retire early, as it allows you to complete your premium payments sooner.
Can I switch from a regular premium plan to a limited premium plan later?
Most insurers don’t allow switching between payment terms after policy issuance. So, this is a decision you must take before you purchase the policy.
Will the policy lapse after the limited premium term ends?
Even when your payment period in any limited premium plan has ended, the policy is very much active till the end of the policy term. You don’t need to pay any more premiums once the premium payment term is complete.
An ISO 9001:2015 
