Should You Choose the Regular Pay Option for Life Insurance Premiums
5 min read | 3 months ago
In the recent years, India’s entrepreneurial spectrum experiences an unprecedented boom. This is due to the rapid growth of both the range of startups themselves and the programs initiated by the state to nurture SMEs. The data provided in the annual report of the MSME Ministry 2020-21 is shocking and greatly inspiring for small business owners.
In India, there are around 6.33 Crore registered MSMEs. Of these, micro businesses make up over 99%, and small businesses are around 0.52%. The presented figures show that micro and small businesses are highly involved in the Indian economy. But, setting up a business, even a micro or small one, comes with its own set of challenges. So, how can you set up a small business effectively? We’ll guide you on that.
Should You Choose the Regular Pay Option for Life Insurance Premiums?
Life is unpredictable, and the future is hard to foresee. Therefore, a life insurance policy is an essential thing to have, securing your family's future. Life insurance can mean financial protection for your loved ones in case you pass away. However, choosing the right adult or child life insurance policy can be an overwhelming task.
The premium payment option is one of the important factors that people should think about when they are choosing a life insurance plan. There are both regular and limited payment options available, whether you are buying from a life insurance company, or a financial institution like small finance bank. However, you may be torn between which is better for yourself. While limited pay option is the most promoted option, financial advisors recommend regular pay as the better option. Wondering why? In this blog, we will explain why you should choose the regular pay option for life insurance premiums. So, let’s begin.
Frequency of Premium Payment
The frequency of premium payment is a crucial factor to consider while buying an individual, family or child life insurance policy. It refers to how often you pay the premiums for your policy. There are two types of payment terms available for life insurance policies.
Regular Pay: In the regular pay option, you pay the premium for the entire policy term. For instance, if you buy a 30-year term insurance policy, you pay the premium for 30 years. The regular pay option is the most popular premium payment option among policyholders.
Limited Pay: In limited pay option, premiums are paid for a fixed period much shorter than the term of the policy. For example, if you buy a 30-year term life insurance policy with a limited pay option on 10 years all that needs paying is ten annual premiums and these will last for thirty years. The limited pay option is for people who would like to pay all of their premiums in advance.
What is Regular Pay
As mentioned earlier, the regular pay option is the most popular premium payment option among policyholders. In this life insurance investment, you pay the premium for the entire policy term. The regular pay option offers several benefits.
The regular pay option offers better financial planning. When you pay your premiums regularly, you can plan your finances better and ensure that you have enough funds to pay the premiums.
Regular Pay vs Limited Pay: Which One is Better?
Now that you know about the regular pay and limited pay options let's compare them and see which one is better.
The limited pay option may seem like a better choice initially as you complete your premium payment obligation early. However, the premium for the limited pay option is significantly higher than the regular pay option. When you factor in inflation, the regular pay option is cheaper in the long run
Wondering how? Well, let us break it down for you. When it comes to the cost, regular pay is actually cheaper than limited pay when you take the time value of money into account. Here's why: limited pay policies require you to pay a higher premium for a shorter period of time, which means you're paying more money upfront. On the other hand, regular pay policies require you to pay smaller premiums over a longer period of time, which can save you money in the long run. So, if you're looking to save some cash, regular pay is the way to go!
Tax Benefits of Regular Pay of Insurance Premium
Apart from the above benefits, the regular pay option also offers tax benefits under sections 80C and 80D of the Income Tax Act, 1961. You can claim a tax deduction of up to Rs.1.5 lakhs under section 80C for the premium paid towards your life insurance policy. Additionally, you can claim a tax deduction of up to Rs. 25,000 for the premium paid towards a health insurance policy under section 80D.
Conclusion
In conclusion, the regular pay option is the most popular and beneficial premium payment option for life insurance policies. It ensures that your policy remains valid for the entire policy term and offers better financial planning. Additionally, it is cheaper than the limited pay option in the long run. Hence, we encourage you to choose the regular pay option for your life insurance premium payment.
FAQs
1. What is the regular pay option for life insurance premiums?
Regular pay means paying premiums annually or monthly throughout the term of your life insurance policy.
2.What are the benefits of choosing the regular pay option?
Regular pay spreads the cost of premiums over the policy term, making it easier to manage expenses and ensure continued coverage.
3 How is regular pay better than limited pay option?
Regular pay is cheaper than limited pay as it considers the time value of money. It also offers tax benefits under Section 80C &80D.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
