Benefits of Limited Premium Payment Option in Term Insurance
Insurers have come up with new products to meet the different requirements of their customers. Today, most policyholders want to invest in customized products as per their personal needs and objectives.
A term life insurance is an affordable and convenient way to financially secure your family in your absence. This plan pays the benefits to your nominees if an unfortunate event occurs during the policy term.
The cover is available for a particular period, and you need to pay the renewal premium to keep the policy active. Two major disadvantages of a regular term policy are that the premium may extend into your retirement, and if you do not pay it on time, the policy will lapse.
A suitable alternative in this scenario is a limited premium payment term plan. This type of term insurance policy gives you the option of paying the premium for a certain period, and the coverage continues for a longer time. For example, you may buy a term plan for 25 years and choose to pay the premium for only 10 years. In this case, the insurance coverage continues for an additional 15 years, even after you stop paying the premium at the end of the 10th year.
What are the advantages of a limited premium term plan?
This plan reduces your financial burden of paying the premium for several years. Here are four plus points of these types of term plans:
1. Shorter premium payment duration
This is the most important benefit of a limited payment plan, as it eliminates the trouble of paying the premium for a long time. You can pay the premium for a shorter tenure while enjoying the coverage for a longer period. This helps you plan your premium to ensure that the payment term does not stretch into your retirement years.
2. Increased insurance coverage
The primary objective of an online term plan is to provide your family with financial stability in your sudden absence. A limited premium payment term plan allows you to extend the insurance cover even during your retirement without the burden of paying the premium. This provides financial security to your family for a longer period, ensuring maximum benefits to them.
3. Lesser chances of a policy lapse
When you buy a term plan online, you must pay the premium on time to ensure that policy is in force. However, when you opt for this kind of a term plan, you do not have to worry about remembering to pay the premium for a longer period. Moreover, once the premium payment term is over, there is no possibility of the policy lapsing due to non-payment. This guarantees uninterrupted coverage in the long-term.
4. Tax exemptions
An online term plan with a limited premium payment duration is more expensive than a standard policy. This is because the insurer must recover the risk coverage offered for the long-term in a shorter period. Since the annual premium for limited payment plans is higher, you can avail of a tax deduction under Section 80C of the Income Tax Act, 1961 up to INR 1.5 lakh. Additionally, the benefits paid to your nominees in your absence are tax-free under Section 10(10D) of the Act.
Most insurers charge a higher premium on term insurance as you grow older. When you buy it at a younger age, the premium is lower. However, the amount on a limited premium payment plan is higher when compared to a regular plan, even if you are young. This cost can increase significantly if you delay the purchase of the policy when you are older. Therefore, it is recommended that you buy term insurance at an early phase of life to save money.
Limited premium payment plans are advisable if you are self-employed or have a short career span. You may not want to take the burden of paying the premium for a longer tenure, which makes this an excellent alternative. However, before you make your decision, compare the various available options to make an informed choice.