The best financial instruments are usually the ones that can be tailored according to the consumer. Term insurance is a leading type of insurance in the country as it offers significant sum cover for low premiums. You can customize your term insurance based on your requirements. Be it the flexibility of your payments or adding riders to your insurance, you make the choice that suits you. When you buy a term plan, you can pay according to your own convenience.
Types of term plans based on premiums
There are mainly three broad categories we can divide term insurances into, based on the method of premium payment:
- Regular pay – Regular payment is the simplest of all. In this method, you pay premiums regularly for a fixed period. Depending upon your convenience, you can choose the frequency of your premiums, monthly, quarterly, yearly, or half-yearly.
- Limited pay – As the name suggests, in this method, you choose a limited term for paying your premiums. You can choose for what duration of your term plan you will make payments. Say, you purchase a term policy for 30 years, you can choose to pay premiums only in the first 15 years. When you choose to do so, the premiums are adjusted accordingly. However, the tenure of your life cover stays unaffected.
- Single pay – Some people wish to eliminate the recurring expenses and buy a term policy once and for all. Such individuals opt for a single-pay term plan. Here, you pay one lump sum amount and buy the policy instead of paying premiums at regular intervals.
These three types meet the needs of different people. According to your preference, you can choose any of them. A popular option that several people opt for is a limited pay term plan.
Benefits of a limited pay term policy
Term insurance with limited pay ensures that they cover you for a longer duration without you having to stress about premium payments all throughout the tenure. Read on to know the benefits you can get if you choose a limited pay term policy.
- A brief span of payment
With limited pay term insurance, you can get a life cover for a long duration, but at a short payment of premium. As long as you are a working individual, you can select the period of payment for your term insurance according to your convenience. This is a great way to get your retirement covered without having to worry about the premiums at that age. Say, you bought your term plan at 50 for 20 years, and you are going to retire at 60. You can simply choose to pay your term premiums in the first 10 years and retire at ease without having to worry about premiums.
- Higher tax benefits
If you check on the term insurance plan calculator, the premiums of a term plan with a limited payment period are naturally higher than the ones with a regular payment. The more premium you pay, the more tax benefits you can avail yourself of. As under section 80C of the Income Tax Act, the premiums on your term plans are deductible from your taxable income. You can avail of this tax benefit for up to Rs.1,50,000 annually.
- Reduces the chances of policy lapse
When you buy a term plan, you choose the premiums and coverage according to your current financial standing. However, as the years pass by, your source of income can increase or decrease. Because of an unfortunately difficult phase, your finances may be disrupted, and you may fail to make the payments of your term plan. This might lead to your term insurance lapsing. However, this risk is naturally reduced with limited pay term insurance. As the term of your payment is short, the chances of your policy lapsing are also less.
The earlier your age, the less your amount of premium will be for your term plan. Even on a term insurance premium calculator, age is a major factor in determining the premium of your term policy. Hence, if at a young age, you are buying a term insurance with limited pay, you can easily opt for a huge sum cover as the premiums will be low and you will be done with the payments in the earlier stage of life. This will ensure that you get a suitable cover for the later stage of your life without having to worry about payments.
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