Limited Pay Vs Regular Pay Term Insurance: Which Is Better?

Written by : Knowledge Centre Team

2023-08-05

1369 Views

Locate branch

Resume journey

Pay Premium

Limited and regular pay are different options available under an insurance policy. A policy buyer has the freedom to choose their premium payment frequency as per their financial horizon. While some people may find it easier to pay the premiums regularly every month, some may find it easier to pay it in one go.

Different life insurance plans offer various unique features. Flexibility in premium paying frequency is one of the important features that help to form your decision of buying the policy.

In general, there are three frequencies of paying the premiums:

Limited Pay
Regular Pay
Single Pay

We will focus on limited and regular-pay insurance plans.

Limited Pay

With limited premium payment option, you make regular payments, however, the payment term is limited or pre-specified. The payment term will be less than the policy term. However, the policy will stay in-force till the term completion.

The shorter your premium payment term, the higher the premium will be. However, there are various benefits of limited premium payment term. For example, you pay for the policy till retirement but the cover continues several years after retirement.

Regular Pay

In this option, your premium payment term is equal to the policy term. You can choose the frequency of the payment. Life insurers offer monthly, quarterly, bi-annual, and annual frequency of payment.

Key Differences between Limited Pay and Regular Pay

Features	Limited Premium Pay	Regular Premium Pay
Duration	Shorter. Pre-defined period	Longer. Lasting throughout the policy term
Coverage	Continues till policy term	Continues till policy term, however, subjected to regular premium payment
Chances of Default	Probability of defaulting on the premium payment is low as the payment frequency is limited	Chances of defaulting is high as you have to pay the premiums till the policy term
Cost of Premium	As you pay the premiums before the policy term within limited window, the chances of premiums increasing due to age is low	Premiums may increase with time
Financial Burden	Burden is limited to a specific window	Financial stress is spread across the policy term
Rewards and Discounts	As premiums are paid within a limited window, there is a chance of getting some discount on the premium	Offers no discounts and rewards, mostly

Which Premium Payment Option should you Choose?

You may want to continue your life cover past your retirement. This is beneficial if you have loans, dependent family members to look after in the post-retirement period. In such a case, pay till retirement is a wise financial decision.

However, if you are self-employed and have a cyclical income, you will be better off with limited or even single premium payment option. You can choose limited pay option so that your payment obligation is for a short period only.

If you are a salaried professional who has a steady stream of income, you may choose regular premium pay option. It gives you a buffer to manage your finances.

FAQs Related to Limited Pay Vs Regular Pay Insurance Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.