Making the Most of the Limited Pay Option in a Term Plan

2020-08-19

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Are you planning to buy a term insurance cover? If yes, you might find the limited premium payment option an attractive feature. In fact, you may even want to pay the entire premium in a single instalment.

Yet, you might think that there must be a catch here since, how could anything be this amazing and not have a hidden cost. Let’s find out.

What is Limited Pay Option in Term Plan?

The usual premium payment term of any life insurance plan, including the term plans, is equal to the policy term. For example, if you are 30 years of age and buy a 30-year life insurance policy:

You will pay 30 annual premiums, or
Until there is a death claim on the policy and policy terminates

So, unless there is a death claim after which the policy will be over, you will need to pay the premiums.

Limited pay option is a feature in life insurance plans where you can pay all the due premiums within a much shorter time frame. For example, within five years for a policy that will continue, if without claim, for 30 years.

Why Do You Need Limited Pay Option?

Life insurance in any form is usually a long-term commitment. Often, it is difficult to predict the type of changes you may face over these many years. At times you may even have plans for yourself as well.

Scenarios when you will find limited premium option useful:

You plan a major career shift – from job to business
Looking forward to a sabbatical in near future
Buying a Whole Life Cover

As you can imagine, you would want to keep your financial commitment at a low while planning and executing major career shifts or while going for higher education. The limited premium payment option relieves you from the burden of paying the insurance premiums at such times.

In the case of whole life plan, you will anyways need to use limited payment term so that you can finish paying all the premiums before your retirement.

Advantages of Limited Premium Payment

Apart from being useful in continuing the life cover in financially difficult times limited premium payment term offers more advantages.

Enjoy A Discount on Premiums

Limited Premium Payment is a great option that lest you remain covered for longer, while you pay less number of premiums. It is great when you want to pay the premiums while you are still working and have a regular income, while you can stay covered even when you retire.

Limited payment option also allows a discount on the total premium. Shown below is a table of limited payment options under the iSelect Smart360 Term Plan, and it is evident that the faster you pay the premiums the lower the total premium payment gets.

Is There Cover of Covid-19 Infection in Regular Health Insurance Policy?

According to guidelines issued by the IRDAI (Insurance Regulatory and Development Authority of India), all the claims related to Covid-19 treatment (including quarantine period) will be eligible to gain coverage under a standard health plan. It will be there to help the insured with the normal cover on hospitalization for all viral infections, including Corona. All the features you enjoy under your chosen health insurance plan will also apply to Covid-19 treatment. But to avail treatment through your medical insurance, you must be hospitalized at least for 24 hours. In the event of hospitalization, all your expenses will be covered for treatment of disease, including pre and post hospitalization expenses.

Utilize Higher Tax Benefit

The life insurance premium you pay reduces your tax liability for the financial year, with a rebate under section 80C. Considering the maximum 80C limit is Rs. 1.5 Lakhs you have ample space to save taxes using life insurance premiums.

We know that the annual premium for a Rs. 1 crore term plan comes around just Rs. 12,000, if you are 30 years of age. But if you decide to pay all the premiums for the next 30 years within the next 5 years your premium would be slightly more than Rs. 45,000.

Avoid Policy Lapse

If anything, the recent COVID-19 situation has taught us, it is the importance of preparedness for an emergency. We have seen how fast the economic situation can turn upside down. And the last thing you would want in such times is your insurance plans to lapse. So, the limited premium payment option also saves the life cover (and the associated benefits) from lapsing due to unpaid premiums.

So, you can see there are multiple ways you can take advantage of the limited payment term and enjoy continuous insurance cover, that too at a discounted premium rate. This is especially useful in a term plan, as you would want the cover to continue regardless of the long-term financial situations.