Term Insurance with Limited Pay

Say you are about to travel. Before setting off, you fill a backpack with essential supplies like your identification documents, medicines, water bottle, etc. so you’re prepared for whatever may come. In the realm of financial planning, term insurance serves as that very backpack, safeguarding your loved ones' future. It acts as a protective shield, assuring financial support for your family in case the unexpected occurs. To keep the coverage active, you will need to make premium payments. You have the freedom to choose different premium payment options based on your financial situation and preferences. One such option is the Limited Pay option, which allows you to pay premiums for a specified period shorter than the entire policy period.

But what exactly is Limited Pay in term insurance, how does it work, and how can it benefit you and your family? If these questions have piqued your curiosity, then this article is just for you.

What is Limited Pay in Term Insurance?

With the Limited Pay option, you have the freedom to accelerate your premium payments and get rid of the payment burden more swiftly. Instead of making payments throughout the policy period, term insurance with Limited Pay allows you to pay off your premiums in larger and faster instalments. And the best part? Regardless of how quickly you complete your premium payments, you still retain your term insurance coverage until the end of the policy term. For example, Helena is a 35-year-old businesswoman who recently purchased a 25-year term insurance plan to secure the financial future of her family. She anticipates that her income may not be stable in the future and wishes to pay off the premiums as soon as possible. As she explored the various premium payment options available, she came across the Limited Pay option. She opted for the same with a duration of 10 years. This meant that she would make larger and faster premium payments over the next decade, and continue to enjoy coverage for the next 15 years as well.

How Is the Limited Pay Option Different from Other Options?

When it comes to premium payment options in term insurance, there are 2 other options – Single pay and Regular pay.
➔ Single pay option: Here, you need to make the entire premium payment in a single go, at the time of purchasing the policy. This grants you term insurance coverage for the entire policy duration without any further payments.
➔ Regular pay option: In this option, you will be required to make premium payments throughout the entire policy period.
Limited Pay, however, offers a unique middle ground. Unlike regular pay, where the premium payment term matches the policy term, Limited Pay lets you choose your premium payment term that will be shorter than your policy duration.

Benefits of Limited Pay Option

Here’s a table that discusses the remarkable benefits that the term insurance with Limited Pay offers you –

What are the Types of Limited Pay Options?

Here are some popular types of Limited Pay options available in term insurance –
👉5 Pay: In just 5 years of buying the term insurance policy, you can fulfil all the premium payments.
👉7 Pay: With this Limited Pay term insurance, you only need to pay premiums for the initial 7 years of your term insurance policy.
👉10 Pay: Complete all your premium payments within 10 years of purchasing the term insurance policy with this option.
👉20 Pay: Similar to the previous options, the 20 Pay option lets you finish paying your term insurance premiums within 20 years.
👉Pay till 60: You can choose this option to complete all your premium payments until you reach the age of 60. For instance, you decide to purchase a term insurance policy for 55 years when you are 30 years old. If you choose the 'pay till 60' premium option, you will make premium payments until you turn 60, while your coverage will remain intact until you reach the age of 85.
👉Rolling Limited Pay: With this flexible option, you can customise the number of years for which you want to pay your premiums. It allows you to tailor your payment schedule according to your financial situation and goals as suitable to your individual life.

For Whom is Limited Pay Suitable for?

While the Limited Pay option provides early financial freedom, it will only be suitable if -
1️. You Want to Escape the Burden of Long-Term Premium Payment
For individuals seeking to alleviate the responsibility of long-term premium payments, the Limited Pay option is a perfect choice. By opting for this option, you can swiftly fulfil your premium obligations and enjoy the benefits of your term coverage for the remainder of the policy duration.
2. You Plan To Buy A Long-Term Policy
If you plan to purchase a long-term insurance policy that offers coverage for an extended period, such as 80, 85, or even 99 years, the Limited Pay option is ideal. Such policies mostly have premium payment durations that extend beyond your retirement age. By selecting the Limited Pay premium option, you can avoid the financial burden of premium payments during your post-retirement years.
3️. You Have An Erratic Income
The Limited Pay option in term insurance is particularly beneficial for individuals with fluctuating incomes, such as self-employed professionals, enterpreneurs business owners, athletes, sportspeople, performance artists, etc. These individuals often face uncertainties regarding their income streams, making it challenging to commit to paying premiums for the entire policy duration. By opting for Limited Pay, they can effectively manage their premium payments according to their income cycles, ensuring financial stability while still enjoying comprehensive protection over the policy period.

Conclusion

The Limited Pay term plan offers simplicity and convenience. By swiftly fulfilling your premium obligations, you can unburden yourself from long-term financial commitments. Before opting for such an option, ensure that you do evaluate whether it aligns with your specific needs and financial circumstances. This will give you a sense of comfort that you have made a responsible decision to safeguard your family.