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Limited pay vs Regular pay | Term Life Insurance

While buying term life insurance in India, you have to do complete research about Claim Settlement, Amount Settlement Ratio, Solvency Ratio, and many other things. There is also one important thing that you have to select before buying term life insurance is its premium paying option. Basically, there are three types of options, Limited pay, Regular pay, and Return of premium.

term life insurance
limited pay, regular pay and return of premium

Limited pay

In limited pay, the Insured has to pay a double premium for the limited period only, while the policy will remain to continue for the selected term.

For example- Mr.Ram’s age is 40 now and he bought a term plan for 30 years and he also selected the option of limited pay. In this case, the Insured has to pay a double premium for 10 years and after that, there is no need to pay any premium. (you can select the limited pay term as per your preference) . However, the policy will continue for the entire 30 years.

Regular pay

In this case, the Insured has to pay the premium for the entire policy term. The premium is regular, you don’t have to pay any extra premium like limited pay.

For example- Mr.Ram’s age is 40, buys a regular pay term plan for 30 years then he has to pay the premium for the next 30 years as per the policy term.

Return of premium

This is another mode of premium payment. If you choose this option then you have to pay the double premium and once your policy term over and if nothing happens to you in this time period, then you will get your whole premium back from the Insurance company.

For example- Mr. sunder age 35, buys a term plan for 20 years with the return of premium option. Then in this case he has to pay a double premium for the specified term. After 20 years when he turns 55 and if nothing happens to him then he will get the full premium back.

Difference between Limited premium, Regular pay, and Return of premium.

We have created a table for your better Clarity, please check out the table below.

Point of difference

Limited pay

Regular Pay

Return of premium

Coverage

Comprehensive Converage

Full coverage for Entire policy term

Comprehensive Coverage.

Premium Period

Shorter premium term as you can decide the period

Longer Premium term.

Limited term of premium period

Policy lapsation

Lesser chance of policy lapsation.

High changes, since policy tenure is longer.

Low lapsation because of shorter disbursement time.

Tax benefits

Insured get tax benefit for only limited period.

The tax benefit is given till the policy gets mature.

Under section 80C, Insured will get tax on premium pay.

Premium Repayment

No repayment of premium

No repayment of premium

Insured will get whole premium back after the maturity.

Which is best to choose?

Choose Regular pay over limited pay and Return of premium. Yes, here you have to pay the premium for the whole policy term and there is no such thing as reimbursement of premium, but the premium is very low as well as you don’t have to pay the double amount for the same cover.

I know you will ask me that If we choose a Regular plan then we will end up paying a high premium over time. Yes, you are right, over time you will pay more premium but at the same time, you can also earn from the amount that you have saved while choosing a regular premium. How?

let’s say if you choose a regular pay term plan of 1cr. for 30 years then you have to pay Rs.1200 per month for the next 30 years.

The total amount paid in premium = Rs.4,32,000

On the other side if you select limited pay of 1cr, for the same term, But here you have to pay the double premium that is Rs.2400 per month for 10 years( limited pay)

The total premium paid in 10 years is Rs.2,88,000.

Total Difference

So, there is a difference between of Rs.1,44,000, let’s say you have selected the Regular pay option, So rather than paying an extra premium of Rs.1200, you decided to invest that amount in mutual funds or any other investment option.

Let assume the Rate of return is 12%

In 10 years you will make Rs. 2,76,000 from that extra amount of Rs.1200 that you will pay if you select the Limited pay. and In the next 30 years (your policy term is also 30 years) you will end up making Rs.42,93,957.

I ignored the Return on premium option because they will repay your premium, but just the principal amount. While you can take the benefit of compounding interest.

So, now it’s your call, whether you want to choose Regular pay, or Limited pay, or Return on premium option. But remember “Time is money”. I know you will make a smart decision if you read the blog carefully.

If you have any other insurance queries then feel free to contact us at mail@apnipolicy.com, or you can book a free appointment call with us by clicking here! Our team will reach out to you and provide you further assistance.

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