It is important to have a term insurance plan in your investment portfolio. It is one of the most affordable and simplest types of life insurance coverage. Term plans pay the benefits to your nominees something untoward happens with you during the period of the policy.
Often when you search for the best term plan, you look at various factors, such as the sum assured (SA), premium, policy duration, riders, and others. However, an important factor that is often overlooked is the mode of paying the premium for the insurance coverage.
Premium payment options include limited and regular. If you choose the regular payment option, you pay the amount during the entire policy duration. Conversely, when you opt for a limited payment policy, you pay the premium for a particular period, while the insurance coverage continues throughout the policy tenure.
The next question that comes to your mind is which option is better. If you want to buy a policy that offers coverage for the long-term, but you want to reduce the financial burden, it is advisable to opt for the limited premium payment plan. Here are some term insurance benefits of limited payment policies:
- Lower possibility of a lapse
The premium payment stops at the end of a specified period while the coverage exists for the remaining duration. Once the limited payment period is over, you do not have to worry about paying the premium for continued coverage. Therefore, this reduces the chances of a policy lapse due to non-payment of premium.
- Long-term coverage
Through an online term plan with the limited premium payment option, you can procure coverage for a longer period. Although you pay the premium only for a particular tenure, the insurance benefits continue for a longer time, ensuring monetary stability for your family in your untimely absence.
- Appropriate if you have a shorter career span
If you have a short career period or have uncertain financial situations, a limited payment plan is beneficial. You can pay the premium when you are earning and eliminate the financial burden later when you no longer have a job but can enjoy the insurance coverage for a longer tenure
- Exemptions on taxation
Often, because the premium payment term is shorter for limited plans, the cost is higher when compared to regular policies. Nonetheless, an amount of up to INR 1.5 lakh paid as a term insurance premium during a financial year is tax-deductible as per Section 80C of the Income Tax Act, 1961. If something unfortunate happens with you during the policy duration, your nominees receive the term insurance benefits. This amount received is also tax-free under Section 10(10D) of the Act.
- Savings over the long-term
Although the annual premium for a limited payment plan is higher than a regular premium term plan, the former can result in significant savings over the long-term. For example, assume you buy an INR 50 lakh cover for 40 years at the age of 30. The annual premium under a regular payment plan is a little over INR 6,000, which amounts to over INR 2.5 lakh for the 40-year policy duration. In comparison, if you choose a 10-year premium payment plan, the yearly premium is about INR 15,000. The total premium paid over 10 years is a little more than INR 1.5 lakh. Therefore, you can save more than INR 1 lakh with a limited payment plan.
Like every other investment decision, it is important you clearly understand limited and regular term insurance plan meaning. Both these options have their advantages and disadvantages. Research the various available choices to find a term insurance policy that best suits your requirements.