A term insurance with a limited premium payment plan is a smart choice for individuals looking to balance affordability with long-term coverage. It allows policyholders to pay off the premium within a shorter duration while still enjoying full coverage for the entire policy term.
In such a term plan, while the policyholder pays the premiums for a shorter duration — 5 to 15 years — the coverage remains active till the age of 60 years. While the yearly premium for such plans is higher than that of regular plans, the total premium outgo over the years is lower as compared with a regular term plan.
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It is also an ideal option for those whose earning potential is highest during specific years, such as early to mid-career. Rishabh Garg, head, term insurance, Policybazaar.com, says this helps individuals who want to secure their family’s future without committing to lifelong premiums. If an individual has a clear financial goal, such as a child’s education or retirement planning, a limited payment term can align with his specific needs. “By paying off premiums early on, they can focus on other financial goals like retirement,” he says.
Regular vs limited pay
In a regular payment plan, there are higher risks of lapsing as payments stretch over a longer duration. However, in a limited pay there is lower risk of missing payments as they are to be paid for fewer years.
In a regular plan, the coverage is only valid as long as the policyholder pays the premiums. But in a limited pay plan even after the premiums are paid, the coverage continues, which means financial security without the ongoing payments.
Suitable for self-employed
Such a plan is suitable for self-employed individuals because of fluctuations in income. These plans are also suitable for those looking for term plans at a later stage in life but prefer a shorter payment horizon to manage their finances better.
Rakesh Goyal, director, Probus, an insurance broking firm, says compared to a regular term plan, a limited premium payment plan is more cost-effective. “While the premiums for a limited payment plan may seem higher initially, the overall savings in the long run make it a better financial decision for many,” he says.
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