A Guide for Ideal Mode of Payment for Term Insurance Plan
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Term insurance plans are long-term policies, which require the policyholder to pay the premium for over 20-30 years. Hence, it is important to use an ideal payment mode so that premium payment doesn’t become a burden for the policyholder.
So, what is an ideal mode of payment of premiums for term insurance plans? It is often suggested that the premium of an insurance plan should be such that it doesn’t become a burden on the policyholder. This is especially true in case of term insurance plans which need the insured to pay the premium for a long duration of approximately 20-30 years. In this post, let us discuss the ideal mode of payment for term insurance plans to make it easy for the policyholder’s pocket.
What are the modes of premium payment for a Term Insurance Plan in India?
There are two modes of payment that can be considered while talking about the ideal mode of premium payment for term insurance. The two modes are namely; the Regular Pay Model and the Limited Pay Model.
These two modes of premium payment are offered by almost all insurance companies in India. Term insurance policyholders can select any of the two above mentioned payment modes as per their requirement.
1. Regular Payment Mode
As the name suggests, under a regular payment model a policyholder pays the premium throughout the policy duration on a regular basis. Hence, in this case the duration of payment of premium as well as the duration of the term insurance plan is almost equal.
Though, this mode may sound too extensive or lengthy in terms of the payment timeline, but this mode is regarded as a balanced one with some benefits. The first and the biggest benefit of this payment mode is that the premium amount under this payment mode is very nominal since the policyholder pays the premium regularly on a monthly, quarterly or annual basis. Further, under this plan, the payee can avail the tax benefits all through the tenure of the policy.
2. Limited Payment Mode
Unlike in the case of Regular Payment, in the Limited Payment mode the tenure of the premium payment can be controlled as per the desired years of the policy duration. Hence, in this case the premium payment duration may come to an end before the policy duration. However, it will have no effect on the policy contract.
With the limited payment mode, the policyholder can pay off the entire premium amount well in advance of the policy tenure. Hence, the policyholder can have the advantage of getting free from his/her obligation of the long-term payment of premiums. However, it requires the policyholder to pay a higher premium amount to complete the total premium payment before the policy ends.
How To Decide Which Premium Payment Model is Ideal for Term Plan?
Well, it entirely depends on the policyholder to decide as to which premium payment option suits them best. Both the options have their unique benefits, which make each one of them lucrative. However, it is important to think about all the pros and cons before choosing the right option of premium payment. This way, the policyholder can ensure that the term insurance stays intact and your pocket is also not burdened with any extra financial load.
Now, to choose the right premium payment model, you must check the nature of your income and your expenses. If you have a steady source of income, you may choose to pay the premium on a regular mode. This way, the insured can keep paying a nominal amount throughout the policy duration without facing any financial crisis. Further, it will also help the policyholder to avail the tax benefits throughout the term of the policy.
On the other hand, if the insured wants to retire early and may not have a steady source of income after a certain age, in that case the limited premium payment can suit the purpose well. Here, the policyholder doesn’t have to worry about paying the premium after retirement since he/she can pay off the entire sum much earlier.
Thus, to select the right mode of premium payment, it is important to check the profession or occupation of the policyholder. For instance, people employed in uncertain or risky job settings may select limited premium payment to complete the responsibility of paying the premium and security of their family in advance.
How to Choose the Ideal mode of Payment for Term Insurance Plan
The best way to pay the premium of a term insurance policy is to pay it through your credit or debit card. With a credit card, you have the convenience of the transaction getting completed automatically if you give the card details. Many insurance providers offer the auto-debit option.
As per insurance experts, the term insurance coverage of an individual should be 15 to 20 times his/her annual income. Hence, if you are currently earning an annual income of INR 10 lakh per annum, it would be wise to purchase a term insurance plan with a sum assured of INR 2 Crore.
Yes, you can change the mode of term insurance payment. For that, the policy holder needs to submit a duly filled and signed request form at the branch of their insurance company.
Different mode of premium payment options in Life Insurance are:
Regular Premium Payment
Single Premium Payment
Limited Premium Payment
The maximum duration of term-life insurance policies can range typically between 10 to 30 years. If the policyholder dies during that duration, cash benefit is paid to the family of the insured.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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