Term insurance is a vanilla life insurance plan that provides cover without any return on the premium payment. Everyone has a different financial capacity when it comes to payment of the life insurance premium. So, to make it more comfortable for the insurance buyers, the insurance companies allow their customers to pay the premium in a regular mode or limited payment mode. Let’s find out what’s the difference between both the modes and which one is more suitable for you.

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One-Time Vs Regular Premium, What’s The Difference?

In a regular premium plan, the insured gets the option to pay the premium at regular intervals. Usually, the interval could be monthly, quarterly, half-yearly or yearly. People who can’t afford to pay large premiums, prefer paying them in instalments, i.e., monthly or quarterly.

In a limited pay mode, the insured gets the option to pay the premium for the entire tenure in a fixed number of lump-sum payments. So, the number of premium payments is lesser than the tenure of the policy. For example, suppose a company offers you a life policy for 30 years with a premium of Rs 12,000 per annum. The insurance company also offer you the option to pay the entire premium for 30 years in a one-time mode with a total discount of 20 per cent i.e. a premium of Rs 2.88 lakh at one go.

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Which Payment Mode Suits You Best?

Regular premium suits people who are looking for affordability in terms of the size of the premium. One-time premium payment or a limited pay option suits insurance buyers who do not want to get into the pain of paying the premium again and again. You must do the calculation if you want to choose the one-time payment mode just because of the lucrative discount offered by the insurance company. In the above example, if you apply inflation at a moderate level of 5 per cent for the tenure of 30 years, the premium of Rs 2.88 lakh will actually cost you Rs 12.78 lakh. On the other hand, in regular payment, you have to pay the same premium i.e. Rs 12,000 every year for the next 30 years. So, at the end of 30 years, regular pay may cost you less than the limited pay. The offer may vary from company to company so do your calculation to know which payment mode will be more beneficial for you at the end of the tenure.

In a regular pay option, on the death of the insured, the premium stops and the beneficiary gets the claim amount but in one-time pay, the premium paid for the remaining tenure is not returned. Even if you have money to pay for the entire tenure, you can still choose the regular pay and invest the excess amount after paying the regular premium to get a big corpus at the end of the insurance tenure.

The author is an independent financial journalist.