Term Insurance: Limited Payout vs Regular Payout
A term insurance plan is a contract between an insured and an insurer, where the policyholder is provided with a life cover or sum assured. In the case of the policyholder’s death during the term of the policy, the sum assured is provided to the nominee. In the case of surviving the policy term, the policyholder doesn’t receive any maturity, unless he/she opted for Return of Premium (ROP) plan. Term insurance plan can provide your family a financial safety net and is much required for protecting the financial future of your family. But to receive the life cover, a policyholder has to make periodic payments to the insurance company. This is known as a term insurance premium.
Different Term Insurance Payout Options
At the time of entering into the contract with the insurer or purchasing the term insurance plan, you have to specify the type of premium payment tenure. Based on the frequency of payments, you can choose various types of insurance premium payment tenures depending on the terms and conditions of the product. Some types of the premium payment terms are as below:
1. Regular premium payment:
This type of premium payment is one of the most popular options. You need to make payments throughout the tenure of the policy, at regular intervals. You can choose to make regular payments on:
- Monthly basis
- Quarterly basis
- Semi-annual basis
- Annual basis.
2. Limited premium payment:
In the case of the limited premium payment option, the premiums payment term is less than the policy’s tenure. Here, instead of making payments for the entire tenure, you are required to pay premiums only for a pre-determined period. For example, suppose you have purchased a term life insurance with a tenure of 15 years and opt for the limited payment option, you can be required to pay premiums for any specified period which is lesser than the policy tenure. Despite paying premiums for a shorter period, the coverage will remain intact till the end of the policy term.
Limited Payout vs Regular Payout
Let’s compare the features and benefits of limited pay vs regular pay in term insurance:
1. Premium payment duration:
The biggest difference between limited and regular premium plans is the duration over which you pay the premium. In a limited premium plan, the premium payment term is shorter than the policy term. In a regular premium plan, you need to pay the premium throughout the policy term.
2. Financial commitment:
If you compare term insurance limited pay vs regular pay, regular pay requires a long-term financial commitment on part of the policyholder. But for limited pay, since the premium payment is made for a predetermined time, the financial burden is limited to a short span of time.
3. Lapse of the policy:
If you compare term insurance limited pay vs regular pay with regards to policy lapse because of non-payment, then both policies won’t provide any benefit on getting lapsed. However, the chance of non-payment is comparatively lesser in the limited pay option as you need to make premium payments for a shorter tenure.
How to choose the suitable Payout Option?
Selecting the suitable payout option is contingent upon your coverage requirements and your existing financial capacity to make premium payments.
The regular payout option is best suited for individuals with a steady income source. A regular salary or stable income can allow you to make premium payments for the long term. If you are a salaried or self-employed individual with a steady income, you can choose to purchase a term insurance plan with the regular payout option.
When it comes to selecting the limited payout option, individuals, such as business owners with fluctuating income, individuals with a short career or close to retirement, can choose to purchase term insurance with this option. If you think that, given the constraint of your present employment or profession, you will not be able to make a long-term financial commitment, you can choose this option.
Thus, before purchasing a term insurance policy, you must consider its key aspects, including the options for premium payment term. You must compare the benefits of term insurance limited pay vs regular pay and then select the alternative which suits you. Always consider your needs and financial position while selecting from the options. This will ensure that you pay the premiums in time and successfully create a financial safety net for your loved ones.
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