Premium is always the most important factor when buying a term insurance policy. The total premium you pay annually is in return for life insurance. You need to make sure your premium fits your budget and the coverage you buy with it offers your family enough financial security. It is important to pay your premiums on time as it keeps the policy active for the entire term.
Term insurance is more economical than other types of insurance. The premium you pay for the policy is usually quite affordable. One can determine that with the help of a term insurance premium calculator. However, there is one thing you need to take care of. The premium payment method may vary depending on the amount of coverage and your lifestyle. Here are the different types of term insurance premium payouts:
Term insurance premium payment structures
The following are the premium payment options that you will be offered by insurance providers:
- Regular pay
In this structure, the premium payment period is equal to the policy term. That means – the policy premium is evenly distributed over the term of the policy.
- Limited pay
In this structure, the policy term and the premium payment term are not the same. The time it takes you to pay the policy premium is much shorter than the policy term.
- Single pay
This structure is simple but often very tough for people to follow. According to the single pay structure, you can pay the entire premium of the policy at once. Premiums are paid for the entire policy term at the time you purchase the policy.
Buying a term insurance plan is immensely tedious. There is increasing pressure to consider various factors related to the premium payment. Part of this pressure is choosing the right payment method.
Regular pay is a facility that allows you to pay premiums for the entire term of the policy. This allows you to choose the amount you will pay annually or monthly. Additionally, it helps you to spread the premium payment over the policy term. This way, you can reduce the amount you would have to pay for a single premium payment. For example, if a person has a policy for 30 years and chooses the regular pay option, they will divide their total premium over the course of 30 years.
The payment structure allows the policyholder to pay premiums within a specified period which is less than the policy term. Insurance coverage does not change during the policy term. This means that, eventually, you will complete the premium payment for the policy, but even after that. the coverage will be active. In limited payment, each premium payment would be higher than that of the regular pay structure. Different payment terms such as 5 years, 10 years, and 15 years are often available with insurance providers. At the same time, the coverage period that people usually go for with term insurance is about 30 years. This allows you to complete the payment of your premiums at an early age.
Which to choose?
The choice of the premium payment mode you choose depends on your preference and your payment ability. Here’s when to select each of these options:
- Limited pay
If you have enough savings or cash savings to cover a higher premium payment, you should opt for the limited payment option. If you have enough money left, there is no point in extending the payment.
- Regular pay
Regular salary option is a great choice for those who are getting a salary or are self-employed and are aiming to save some money for their retirement and other financial goals. Paying small premiums over a longer period of time will save them enough money to save or invest in other financial instruments.
Term insurance plans are usually purchased on the basis of customer needs. Before choosing from the different types of term insurance payouts, it is important to evaluate the various features and benefits of the plan.