Limited Vs Regular Pay in Term Insurance

What are the Different Term Insurance Payout Options?

The premium payout simply means the way you choose to pay your term insurance premiums. It decides how long and how often you’ll be making payments to keep the policy active. Usually, there are three different term insurance payout options you can choose from, such as

1. Regular premium payment:

   This type of premium payment is one of the most popular options. You need to make payments throughout the tenure of the policy, at regular intervals. You can choose to make regular payments on:

   • Monthly basis
   • Quarterly basis
   • Semi-annual basis
   • Annual basis.
      

2. Limited premium payment:

   In the case of the limited premium payment option, the premium payment term is less than the policy’s tenure. Here, instead of making payments for the entire tenure, you are required to pay premiums only for a pre-determined period. For example, suppose you have purchased a term life insurance with a tenure of 15 years and opt for the limited payment option, you can be required to pay premiums for any specified period, which is less than the policy tenure. Despite paying premiums for a shorter period, the coverage will remain intact till the end of the policy term.

   
   

3. Single premium payment:

   As the name suggests, you make a one-time lump sum payment at the start of the policy. After that, there are no further premiums topay. While it requires a large upfront amount, it’s convenient for people who have surplus funds and don’t want the ongoing responsibility of periodic payments.

   
   

Limited Payout vs Regular Payout

Here’s a comparison of the features and benefits of limited pay and regular pay in term insurance:

How to choose the suitable Payout Option?

1. Assess your financial capacity

   The choice between limited vs regular payout in term insurance depends largely on how comfortably you can handle premium payments over time. If you have a steady monthly salary or predictable business income, the regular payout option can be a good fit since premiums are smaller and spread out across the entire policy term.

   
   

2. Match with Your Career Stage

   Your career stage also plays a big role in choosing between a limited vs regular payout in term insurance. If you’re early in your career and expect a steady income for many years, the regular payout option can be easier to manage since premiums are smaller and spread over the long term.

   But if you are someone nearing retirement or have fluctuating income, then a regular income might be a suitable option. It allows you to complete premium payments during your peak earning years and stay free from financial commitments later, while keeping your insurance coverage intact for the entire term.

   
   

3. Financial Commitment

   With a regular payout, you take on smaller but continuous payments that last for the entire policy term. This keeps each instalment affordable but ties you to a long-term obligation. In contrast, a limited payout requires you to pay higher premiums within a shorter period, but once that’s done, you won’t have to think about premiums again. The better choice depends on whether you prefer manageable payments stretched out over time or the convenience of finishing early and staying worry-free later.

   
   

Tax Implications of Term Insurance Payouts

The Income Tax Act provides several tax benefits for individuals who purchase term insurance policies. These provisions not only make term insurance an affordable protection tool but also offer additional savings through deductions and exemptions. The deductions are as follows.

1. Section 80C

   Premiums paid toward a term policy can be claimed as a deduction with a maximum limit of ₹1.5 lakh in a financial year.

   
   

2. Death Benefit

   In the event of the policyholder’s death, the payout received by the nominee is completely exempt from tax.

   
   

3. Section 10(10D)

   If you choose the return of premium term plan, the premiums paid would be refunded on maturity. This maturity benefit would qualify as a tax-exempt income under Section 10(10D) if some conditions are fulfilled.

   
   

4. Section 80D

   If you opt for a critical illness rider or any other rider offering health-related coverage, you can claim an additional deduction of a maximum of ₹25,000 in a financial year. The limit increases to ₹50,000 if you are a senior citizen.

   
   

Key Takeaways

1. The choice between limited vs regular payout in term insurance depends on your income stability, financial goals, and how long you want to continue premium payments.
2. Regular payout spreads premiums over the entire policy term, making each installment smaller and easier to manage, ideal for individuals with a steady income.
3. Limited payout requires higher premiums upfront but frees you from long-term payments while maintaining coverage till the end of the policy term, suitable for those nearing retirement or with fluctuating income.
4. Single premium payment allows a one-time upfront payment for the full coverage period, offering convenience for people with surplus funds.
5. Term insurance premiums are eligible for tax deduction under Section 80C, death benefits are exempt from tax under Section 10(10D), and health riders can provide additional tax benefits under Section 80D.
6. Choosing the right payout option can help balance cash flow, long-term commitment, and peace of mind, ensuring financial security for your family without unnecessary stress.
    

Conclusion

Thus, before purchasing a term insurance policy, you must consider its key aspects, including the options for premium payment term. You must compare the benefits of term insurance limited pay vs regular pay, and then select the alternative which suits you. Always consider your needs and financial position while selecting from the options. This will ensure that you pay the premiums on time and successfully create a financial safety net for your loved ones.

FAQs

1. Can I change the payout option after buying term insurance?

   Usually, changing the payout option is not allowed after you have bought the term insurance policy. However, you can contact your insurance company and find out if the change is allowed.

   
   

2. Is the limited payout taxable for nominees?

   Any amount that the nominee receives after the death of the insured is completely exempt from taxes. It does not matter whether the regular or limited premium payment option was selected.

   
   

3. Can I choose both limited and regular payouts together?

   You can choose both limited and regular premium payment modes under different term insurance plans. So, if you choose more than one term plan, you can choose different premium payment modes under each.

   
   

4. Which payout option is best for families with dependents?

   The payout option depends on your affordability and preference. You can choose the regular premium payment option if you want lower annual premiums that fit in your budget. On the other hand, you can also choose the limited premium payment mode if you want to clear the premium payments quickly to enjoy a higher disposable income in later years. So, the choice is entirely yours.