Let’s take a look at how term insurance plans work.
How Term Insurance Works
Term insurance plans offer you a life cover over the duration for which the plan is valid. In case of the life assured’s demise during this period, the death benefits guaranteed under the term policy are paid out to the nominee assigned. Being pure protection plans, term insurance policies are cost-effective type of insurance. You can get a higher sum assured in term insurance plans by paying comparatively lower premiums. If you’re unsure about the amount of sum assured you need, you can always make use of a term insurance calculator online.
Now, when it comes to premium payment, the duration over which you have to pay that premium can be customized. And based on the premium payment term, there are different types of term plans. In this context, the most common type is the regular premium term insurance plan. Let’s see what it’s all about.
What is a Regular Premium Term Insurance Plan?
A regular premium term insurance plan is simply a kind of term plan where the premium payment term is the same as the policy tenure. So, this means that you will have to continue to pay premiums from the date you purchase the policy to the date the policy term ends. Let’s look at an example to understand this better.
Say you use a term insurance calculator and see that you need a life cover of Rs. 1 crore. So, you purchase an appropriate term plan with a policy term of 30 years. If this is a regular premium term insurance plan, your premium payment term will also be 30 years. So, you will have to pay premiums to the insurer till the policy term ends (or till the insured incident occurs, whichever is earlier).
How does a Regular Premium Term Plan differ from a Limited Premium Term Plan?
As you’ve seen in the example above, in regular term plans, the policy term and the premium payment term plan are equal. These plans differ from limited premium term plans. In limited premium plans, the premium payment term is always shorter than the policy term. What this essentially means is that you need not pay premiums throughout the policy term. But your life cover will remain valid throughout the tenure of the policy.
Again, let’s look at an example to understand this. Say you purchase a limited premium term plan with a policy term of 30 years. But you will only have to pay your premiums for, say 20 years. Thereafter, you need not pay any premium for the last 10 years of the policy term, but you will continue to enjoy the benefits of the life cover. Here, the premium payment term of 20 years is shorter than the policy term of 30 years.
Benefits of Regular Premium Term Insurance Plans
A regular term insurance plan offers many benefits to policyholders. For instance, regular premium term plans give you the opportunity to spread the costs over several years, thereby reducing the financial burden. Also, the tax benefits on premiums are also distributed across the policy term.
When to invest in a Regular Premium Term Insurance Plan?
A regular premium term insurance plan may be suitable for you when:
- You have a regular, fixed source of income like salary or rental income
- You want more affordable premium payments, even if it means paying for a longer duration
- You want to distribute your tax benefits across your earning years
Conclusion
That should make the details of regular premium term plans clearer for you. If you find that this kind of payment structure is more beneficial for your life goals and financial needs, make sure you purchase a plan accordingly.
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