How To Choose The Best Premium Payment Option In Life Insurance?

Life insurance is an essential financial product that provides security and protection for you and your family in the event of an unexpected tragedy. However, choosing the best life insurance policies for you and your family is just the beginning. Once you’ve selected a policy, you need to consider how you will make premium payments.

How you pay your premiums can vary as per a person’s insurance needs and depends mainly on factors such as your access to funds, affordability, commitments, and convenience. In this article, we’ll discuss the various options available for paying life insurance premiums and how to choose the best life insurance policy accordingly.

Premium Payment Option in Life Insurance Policies

  • Regular Premium Payment

Regular premium payments are the most common and preferred mode of payment for most policyholders. Premium payments are made at a regular frequency, which the policyholder can choose, i.e., yearly, monthly, quarterly, or half-yearly.

Benefits of Regular Premium Payment

  • Regular premium payments make the premiums affordable by stretching the payment process over a long period.
  • It helps with placing a heavy, one-time financial strain on the policyholder.
  • Regular premium payments offer immense flexibility to the life insurance policyholder, as they can discontinue the policy if their circumstances change or they have reduced liabilities.

Example – Mr Sharma is planning for his life Insurance with an annual premium of ₹30,000, which he decides to pay through regular premium payments. He opts for a quarterly premium payment frequency, which means he has to pay ₹7,500 every three months.

At the end of the policy term, if Mr Sharma survives, he will receive the maturity benefit, which is the sum assured plus any bonuses, if applicable. On the other hand, in case of his unfortunate demise during the policy term, the death benefit from his life insurance will be paid to his nominee or legal heir.

  • Single premium payments

Single premium payments are not a very common mode of paying for life insurance policies. Under this method, the policyholder must pay the entire premium amount upfront in a single payment, regardless of the policy duration. Although it may seem cheaper, financial experts suggest that, when adjusted for inflation, single premium payments can often cost more than other payment modes in the long run.

Benefits of Single Premium Payments

  • Single Pay premium payments are a one-time lump sum payment; hence, there is no hassle of multiple premium payments.
  • The possibility of the policy lapsing due to non-payment of premiums is reduced since the single premium has already been paid during the policy purchase.

Example – Let’s say you want to purchase a life insurance policy with a sum of ₹10 lakhs for a policy duration of 10 years. If this policy is paid annually, the premium would be around ₹10,000 per year. However, if you opt for a single premium payment mode, you would have to pay the entire premium amount of ₹1 lakh upfront in a single payment.

  • Limited premium payment

With limited premium payments, policyholders can pay off the premiums for their entire policy within a short period, such as 5 or 10 years, respectively.

Benefits of limited premium payment mode for life insurance:

  • The life insurance premiums are taken care of quickly, while the insurance benefits can continue for a long time.
  • It is a convenient payment option for those who want to avoid paying premiums over a long period.
  • It is also a preferred option for those who wish to pay small premiums but also complete the premium payment term before the policy term.

Example – Suppose you purchase a life insurance policy with a sum assured of ₹10 lakhs for a policy duration of 20 years. The limited premium payment mode will be for 10 years, and you must pay the premiums for the entire policy within the first 10 years.

The limited premium payment mode benefits those who want to pay off the premiums quickly, avoid the financial burden of premiums in their post-retirement life, and continue to enjoy the insurance benefits for a long time.

Tata AIA life insurance plans offer different policies based on your goals, affordability, and coverage with the flexibility of premium payments.

Conclusion

Choosing the most suitable premium payment option for your life insurance policy is an important decision that depends on several factors, such as affordability, convenience, and financial goals. Therefore, it’s essential to assess your financial situation and consult with a financial advisor to make an informed decision and select the best payment option that suits your needs and goals.