Premium payment is one of the most significant factors that may affect life insurance. It helps the potential policyholder to determine how much of their finances will have to be redirected to help maintain their life insurance policy.
There are various types of life insurance easily available today, online as well as offline.Each of these may come with different premium payment options for the customer to choose from.
Types of Premium Payments
There are three types of premium payments that insurance providers may offer you to pay for the life insurance policies that you buy from them. Let’s take a quick look at each of these.
- Regular premium payments
This is a type of premium payment where the duration of the life cover matches the duration of the premium payment. In other words, you are paying your life insurance plan premium throughout the policy duration, till maturity.
Here, you have the option to pay your premiums monthly, yearly, or quarterly. The options available to you will depend on what your insurance provider has to offer. This is the sort of payment method to choose if you agree with your cover duration being in sync with your premium payment duration.
- Limited payment
Limited premium payment term, also referred to as limited premium payment period, is a method of premium payment where the policyholder makes premium payments only for a limited duration. Suppose policyholder X takes a term life insurance plan and opts for a limited premium payment term. Here, they may be given a choice of how long they want their limited premium payment term to be. If their policy duration is 20 years, the premium payment term, in this case, could be 10 or 15 years.
The length of the premium payment term may also depend on the options offered by the insurance provider for their policy. There may be pre-set options of a limited term for premium payments for each policy offered by an insurance provider. You may visit the plan page of the policy you are keen on purchasing to see what sort of premium payment options are being offered.
- Single premium
This is when you can pay the entire plan premium at the start of the policy duration, i.e., when you are buying the policy. This may prove to be financially heavy for some customers, but is an ideal option for people who seek to deal with their insurance policy premiums at once.
When you are browsing for a plan, a life insurance calculator may prove to be a helpful tool to understand which premium payment option may be the best for you. These online calculators on insurance provider websites are often plan-specific. Hence, you may be able to not only view which premium payment options are available to you within a particular plan, but you may also be able to see how much premium you will have to pay for each option.
A life insurance calculator can help you make a decision about which premium payment option suits you. Remember that not all options may be available for all types of plans. For example, an insurance provider may offer two endowment plans with slightly varying features. Only one of them may offer all three premium payment options. The other may only offer regular and single premium payments. Thus, it is essential to understand what the plan has to offer before you make the purchase.
Is Limited Premium Payment Right For You?
Limited premium payment is an option suitable for people who seek to concentrate their premium payment burden into a shorter span of time and enjoy the rest of their policy duration without this payment burden.
Imagine a person in their mid-30s who is aiming for early retirement (by their mid-40s). They seek to buy a type of life insurance policy to accommodate the growing financial needs of their children. It is possible that they may want to pay off all the policy premiums before they have retired. In such a case, a limited premium payment term would help them.
One ought to be careful about choosing the premium payment option. Remember that you may not be able to reverse this decision. Read through the policy details carefully and see which option suits you best. If you are in doubt, you may consult your insurance agent or advisor.