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Advantages of limited premium payment term insurance plans

Limited premium payments tackle the financial burden of paying premiums for longer durations when you choose longer coverage tenure.

ET CONTRIBUTORS|
Updated: Jun 25, 2019, 05.01 PM IST
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The main benefit of limited pay option is that it frees you from paying premiums for your term insurance plan for a long period.
Term life insurance plans are an important addition to your financial portfolio. They have low premium rates as compared to other types of life insurance plans enabling you to afford considerable coverage. When you buy a term life insurance plan, you invest in the financial security for your family in your absence. A term insurance plan pays the sum assured in case of your premature death during the policy tenure. With the death benefit received under the plan, your family can meet their day-to-day expenses as well as save for future financial liabilities. Obviously, higher the sum assured of the plan, higher the death benefit and the level of financial security for your family.

Coverage tenure under term insurance plans
The choice of policy term rests with you. You can choose any term as you see fit. However, since term insurance plans pay a death benefit only in case of death during the policy tenure, you can consider choosing a long coverage tenure. Nowadays, insurance companies are also offering term insurance plans which promise coverage till 85 or 100 years of age. If you feel that your family may need financial assistance in case of your demise even in later years of your life, then you can consider taking a longer coverage tenure so that you are covered for a longer period. If you want to leave a legacy for your nominee(s), then you can look at taking the longest tenure for coverage.

Coverage tenure vis-à-vis premium payments
Normally, longer coverage tenures mean longer premium paying tenures as well when you choose to pay the premiums regularly throughout the policy term. But, are long premium payment tenures feasible?

Disadvantages of regular premium payments:
Regular premiums mean that you would have to pay the premium for the entire duration of the plan to keep the policy in force. Such a premium payment mode might prove disadvantageous due to the following reasons -

1.Premiums might continue beyond retirement
If you choose longer coverage tenures which promise coverage up to a higher age bracket (say 85 or 100 years), regular premium payments would entail expenses even after you retire. You would have to pay the premiums of the plan till the coverage continues, i.e., till 85 or 100 years of age. This premium payment may prove unaffordable post retirement when you don't have a regular source of income.

2.Increased chances of policy lapse
When you are required to pay premiums over a long period of time, there are chances that you might inadvertently miss a payment after some years. When the premium is unpaid, the policy will lapse. Thus, regular premium plans have higher chances of policy lapse. Once the policy lapses, the plan pays no benefit and you lose the coverage.

There is another premium payment option which does not have these disadvantages.

What are limited premium payment plans?
Limited premium payment plans are term life insurance plans which allow you to pay premiums for a limited tenure while your coverage continues for a longer period. For instance, if you buy a term plan with a coverage term of 25 years and premium payment term of 10 years, you would have to pay premiums only for 10 years while the coverage would continue for 25 years.

Benefits of limited pay option
Limited premium payments tackle the financial burden of paying premiums for longer durations when you choose longer coverage tenure. Here are the benefits of limited premium payment -

1.Premium payments end within a short period
The main benefit of limited pay option is that it frees you from paying premiums for your term insurance plan for a long period. You just have to pay the premiums for a limited tenure while your plan runs longer. Thus, limited premium plans also allow you to pay off your premiums within your active working life before you retire.

2.Allows longer coverage durations
When you know that you wouldn't have to pay the premiums after retirement, you can choose term plans with longer coverage durations which continue even after you retire. As you can choose higher coverage tenures, you can also enjoy longer risk coverage and the plan becomes all the more relevant.

3.Reduces the chances of lapse
Since the premiums are payable for a limited duration you don't have to remember paying the premiums on time for a longer period. The premiums are paid off earlier and the possibility of policy lapse reduces and becomes nil in later years of the policy. You can, therefore, enjoy uninterrupted coverage under the plan without the risk of lapse.

4.Better tax benefits if Sec 80C limit not fully used
When you pay premiums for a limited period, the annual premium outgo increases as the premium cost is recovered by the insurer within a short period of time. Limited premium plans, therefore, have higher annual premiums than regular premium plans. This higher premium lets you maximise the deduction available under Section 80C of the Income Tax Act. The section allows deductions up to Rs 1.5 lakh from gross total income and a higher premium helps you claim the maximum possible deduction under this section, provided this limit was not already reached via other tax saving expenditures and investments.

5.Suitable for individuals with a short career span
There are individuals who have a short career span or expect to earn only for a short period of time. For instance, there might be self-employed individuals who are unsure how long their business would last or sportsmen whose careers might be limited. Such individuals may not be comfortable with regular premium plans requiring long term premium commitments. For these individuals, limited premium payment is an option worth considering as it frees them from premium payment obligations within a short time when their incomes are stable.

Currently, there are many insurance companies which are offering limited pay term plans. Some examples are as follows:
Name of the insurance company Name of the plan Sum Assured (Rs) Maximum coverage age (If you start at 40 years) Premium payable for Premium amount (Monthly) (Rs)
ICICI Prudential iProtect Smart Life 4 crores 85 years 10 years 17,629
HDFC HDFC Life 4 crores 85 years 10 years 17,653
Max Life Insurance Max Life Online Term 4 crores 85 years 20 years 14,288
(Source: www.coverfox.com)

However, it needs to be mentioned that regular premium payment life insurance plans also have certain advantages as compared with limited premium payment plans. It is up to the buyer to evaluate and choose the type of premium payment plan that suits him/her after evaluating pros and cons of both types.

You can find the plans online where you can compare and then buy the plan most suitable for you. The online platform offers you an easy way of finding the best term insurance plan for your needs. You can buy the plan quickly and premium payments are also a breeze through digital modes of payment. Moreover, online purchases are also convenient as you can buy the plan from the comfort of your home or office and even on the go.
The quotes are indicative and TIL bears no legal liability for the calculation.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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