When you buy a term insurance policy, it is important to keep the policy coverage active for your family’s benefit. And to do so, you must make premium payments towards the policy.
An insurance policy, be it a term insurance plan or a savings plan, comes with different premium payment options. It is an important aspect of any insurance you will purchase.
For this reason, it is important to understand the different payment options available to you. The choice of the premium payment option can also impact your financial capacity in some ways. So, let’s understand what are the different premium payment options available to you and which one will suit you best.
Types of Premium Paying Terms
There are several ways to pay the term insurance premium:
- Regular Pay: This mode of premium payment aligns with the duration of the policy. It is the most opted-for method of premium payment which can be made on a monthly, quarterly, half-yearly, or annual basis. This can make your premium payments even more affordable.
- Limited Pay: Under this mode of premium payment, the premium payment term or the duration for which the premiums need to be paid is shorter than the policy term. Hence, for a policy term of 20 years, a limited premium paying term would be about 10-15 years. This option is suitable for those who want to quickly pay off the premiums but enjoy life insurance coverage for a longer term.
- Single Pay: The Single Pay option comprises a one-time investment or a lump sum payment towards the policy. This option is most popular among those who want to invest a lump sum amount and not worry about making any future payments towards their policy. While this option may seem expensive, it can actually be a more cost-effective alternative compared to Regular or Limited Pay since one need not worry about the future rate of inflation.
Tata AIA Life Insurance offers all the three premium payment options so that you can customise your term insurance policy as per your needs and your budget.
How to Choose the Right Premium Payment Option?
You can choose a premium payment option on the basis of the below factors.
- Budget: First, consider your financial situation and the cost of insurance coverage. A single-payment option might be wise if you have a large amount of cash on hand upfront. Regular-pay or limited-pay alternatives, however, may be beneficial if you choose to pay for the policy over time.
- Choice of Policy: Whether you opt for a pure term plans, a term plans with return of premiums, savings plans or ULIPs, a certain premium payment option will suit each policy over the other. For instance, since term plan premiums are quite affordable, you can make monthly payments on the policy.
- Flexibility: Pick the premium payment option that offers the most flexibility in terms of financial capacity and convenience. If you have a lump sum amount of money with you, the Single Pay plan would suit your needs. Likewise, for regular payments or a shorter premium payment term, you can choose between Regular and Limited Pay.
- Policy duration: Your policy term can also impact your choice of premium payment. The Single Pay option might be more practical for short-term insurance, such as those with a term of less than ten years. Regular Pay or Limited Pay may be more appropriate for longer-term insurance, such as those with a term of 20 years or more.
- Interest rates: Interest rates also affect your premium payment choice, as an increase in the interest rates may also lead to an increase in the cost of life insurance plans. Therefore, if you want ensure that your premiums remain affordable, you can choose between the three options to see where the interest rates are least likely to impact your premiums and the policy cost.