Life insurance policy is a good security investment.
However, the primary challenge is the regular payment of premiums.
Payment of premiums can be monthly, quarterly, semi-annually, annually, depending on the insurance company.
- 1 When to opt for a limited pay life insurance
- 2 Types of limited pay life insurance plans
- 3 Benefits of limited pay life insurance
- 4 The drawback of limited pay life insurance
With the uncertainty in life, payment of premiums can be hard or a hindrance to achieving your personal goals.
Limited pay life insurance, an option under life insurance policies, is available to allow you to pay your premiums for a limited period.
The payment plan allows you to pay for your premiums for a specified period or a certain age, but the coverage still lasts a lifetime.
The premiums paid will be more than the regular premium payment because payment is in a shorter term.
Depending on the period of payment, the amount of money paid differs as well.
It is relaxing to know that you have finished paying your premiums, and you can focus your finances on other investments while still covered by your insurer, in case of anything.
This option is flexible to any life insurance plan, whether term life or whole life policy.
When to opt for a limited pay life insurance
When you are at the peak of your career with a stable income; at this point, it is a good opportunity to pay large amounts of premiums for a limited time and get done with it.
If you are close to your retirement age, it is advisable that you pay the premiums within a limited period before your retirement while you still have a source of income.
After retirement, payment of premiums can be strenuous due to the lack of a source of income. Availability of other financial commitments in future;
For instance, if you have children who will be joining colleagues at a particular time, this is not a favorable period for paying premiums.
College fees are quite expensive, and dealing with both can be financially burdening.
Limited premium payments plan gives you a chance to complete the premium payments before such time to ease your financial stress.
Types of limited pay life insurance plans
Single Premium Life insurance
This involves a one-time payment of the plan to complete all your premium payments.
It offers similar tax-free death benefits as regular payment plans.
It is favorable to those who can afford the huge amounts of money to pay off the premium at one instance.
A single premium payment plan allows you to request for a loan against the high cash value.
The drawback to this payment plan is the government can consider it as a modified endowed contract.
If so, loans and withdrawals from this policy are taxable as regular income.
Such moves discourage people from taking a life insurance policy as a savings account or a financial investment.
Most insurance warns the policyholder in case of such happenings.
Fixed Time payments
Different insurers offer different time limits.
Below are the most common payment time frame provided.
7 pay life plans: As the name suggests, the time limit is 7 years.
This is the minimum amount of years provided by the insurer for the completion of paying premiums.
Payment within this number of years has no chance of taxation as the years involved are adequate to disqualify the plan as a modified endowment contract.
10, 15, 20, 30 pay life plans: The amount of premiums reduces as the number of years increases.
20 and 30 years are the most preferred payment period due to the low amounts of premiums required and still give you the same end benefits.
Life paid up at 65
A limited pay life insurance policy alternatively gives you up to age 65 to clear the premiums instead of a specified time.
Age 65 is suitable because it is the most common retirement age.
Benefits of limited pay life insurance
Limited career period
With this payment option, you can clear your premiums while your career is booming.
Sportspeople and self-employed business persons might have a short time career.
Limited premiums option liberates you from premium payments after the end of the career period.
Fast cash value build-up
Payment of premiums in large amounts for a short time builds your cash value at a fast rate.
High cash value allows you to take up a loan against the cash value.
This acts as collateral for the loan, at a lower rate compared to banks and other financiers.
Premium payments end earlier
The main reason behind the option of limited premiums is that premium payments end after a short period.
This eases the burden of paying premiums throughout your life or for a longer period.
The payment ends earlier, and your coverage runs longer.
It is beneficial to many that foresee greater financial responsibilities or lack of a stable income in the future, so they do not have to worry about premiums when that time comes.
As you select the type of policy, select a plan that offers longer coverage tenure in a limited pay premium option.
Coverage continues even after retirement, offering you lifetime security even for your dependents.
Caters for your family in the future
Finishing paying your premiums earlier guarantees your family the agreed payouts as a whole without deductions of the remaining balance.
Furthermore, your family can still be able to maneuver through with their normal lives, even when you are unable to provide for them.
Lowers the risk of a lapse
A lapse occurs when you fail to pay your premiums as required, and your insurer has exhausted your cash value.
Mostly, this happens when you have to pay premiums for a long time, especially due to the changes in your financial situations.
Paying the premiums earlier reduces the risk of the policy lapse, hence able to enjoy your coverage.
The drawback of limited pay life insurance
Limited pay premiums require large sums of payment for the premiums.
Such an amount may not be affordable to many who would love to venture into this option.
Limited pay life insurance options can be an ideal plan for you, depending on your current life circumstances.
It is, however, advisable to explore your options before settling for a life insurance policy.