You never know what life is going to throw your way and so, to keep your family financially secure during unfortunate times, a life insurance policy is the best protection you can choose. A life insurance policy is a signed agreement between you and the insurance company, wherein you pay a predetermined number of premiums to the company for a specified tenure. In return, your family gets financial support in the form of the sum assured, in the event of your untimely demise.
There are three ways you can make your premium payments – Single, Regular and Limited.
Different Premium Payment Methods for Life Insurance:
- Single Premium Payment Plans:
In a single premium payment method, you will have to pay the premium only once. With a single payment, you will be provided with coverage for the entire tenure. One of the reasons why it is preferred is because single premium payment plans ensure cost-savings. The premium paid is also eligible for a tax deduction. Additionally, they are highly convenient as you will not need to worry about making payments regularly.
This method of making premium payments is useful for individuals who do not have a steady flow of income. You can make use of the lump-sum amount available with you. However, you will not be able to customise your life cover plan midway.
- Regular Premium Payment Plans:
In a regular premium payment method, you will need to pay the premiums in instalments. The instalment payment method will be spread over the tenure of the policy coverage. You will have the option of choosing the time interval that suits you. It can be annually, half-yearly, quarterly or monthly. Here, the premium payment time and the term of the policy is equal. This is one of the most preferred ways of making insurance premium payments.
Regular premium payment plans are perfect for salaried individuals who have a steady source of income and can pay the premium amount in easy instalments. Regular premium payment is generally opted for a term insurance with maturity benefits.
The insured can continue availing tax benefits on the premium paid every year for the entire duration of the life insurance policy.
- Limited Premium Payment Plans:
In limited premium payment, you have to pay the premium only for a specific predetermined tenure. But, you will get the policy coverage for the entire term of the policy. Once all the premiums have been paid, you can enjoy the coverage without worries.
These plans are great for people who have a short career span, like sportspeople, artists, etc. They can pay the premiums regularly for the duration of their career. After retiring, they can continue enjoying the benefits of the coverage, without the financial burden of the premium payments.
The tax benefits on the premium paid can be availed for the limited premium payment period.
Which Mode of Premium Payment Should You Opt for?
While all three have their perks and advantages, selecting one premium payment method will depend on the policyholder’s needs and their ability to make payments.
Premium payment methods also provide benefits depending on different life insurance types. For instance, limited premium payments are not a general choice, but are preferred for unit-linked insurance plans and regular insurance plans. Similarly, regular premium payment methods are great for term insurance plans.
So, when you are in a position where you have to decide between these three, you must consider important aspects like:
- Tax benefits
- Sum Assured
To conclude, under a single premium plan, you make one lump sum payment for the entire policy tenure, and under the regular premium plan, you make the premium payment for the whole tenure of the policy to get term insurance benefits. Under a limited premium plan, the tenure for payment is less than the term of the policy.
As all of them have their benefits, you should select the plan that best suits your financial situation.
I am Daisy Bell and a pro-level blogger with years of experience in writing for multiple industries. I have extensive knowledge of Food, Fitness, Healthcare, business, fashion, and many other popular niches. I have post graduated in arts and have keen interest in traveling.