Limited payment period life insurance plans are the ones that allow you to pay the cost for a limited period say 5, 10 or 15 years. Number of years may change according to the type and duration of your insurance policy. This period is lesser than your term period, if you have chosen a term insurance plan. Though you pay for a limited period, but you stay insured for the entire term. In case you have chosen for a whole life insurance policy, you stay insured for your entire life.
Does the limited payment period insurance plan suit you?
Many find the idea of paying for a limited period and reaping benefits for a longer period quite tempting. However, there are caveats attached to almost everything. Look for the points below to understand whether it suits you or not.
Higher premium amount
The first obvious limitation is the higher premium amount. Every kind of life insurance policy works on a similar fundamental that is, a price is paid to get the protection. Depending upon your personal case you are supposed to pay a proportion of your sum insured as premium. Now, how much higher is your premium amount, depends upon the length of time for which you choose to pay it.
For instance, if the premium is to be paid for 25 years annually for a term plan for 25 years, the entire cost will be divided into 25 portions. In the second case you opt for limited payment period term plan where you agree to pay for 15 years, the entire cost of 25-year term plan will be divided into 15 portions, which will obviously be higher than it would be in the earlier case.
In case of a whole-life policy, premium rates are already higher than any term plan as the insurance company guarantees protection for the entire life. If you choose restricted payment period plan, the rates would increase even more as you have to pay the required amount in advance what you would have paid for the entire life in case of a regular payment plan.
Tax-saving benefit gets limited
As per income tax act under section 80c, an individual is able to get exemption from tax up to the limit of Rs. 100,000. This exemption counts many other investment sources also like provident fund, National Savings Certificate, health insurance premium etcetera. If you happen to reach the amount excess of Rs. 100,000, you are bound to pay taxes on the difference.
Another condition to avail tax-exemption is that the annual premium amount should be 20% or less of the sum insured. In case, your annual premium amount goes out of this limit, the difference is taxable.
Many people are there that do not want to continue with the policy after a certain duration. If this duration is less than 2 years, the tax-benefits would be reversed. So if you are buying a life policy to save tax and have chosen restricted payment period, do not surrender it before two years.
Limited payment period suits those who have higher surplus amount for a specific period. If you think you will be able to manage a larger part of funds now, which you cannot spare in the later stage of life, go for this kind of insurance plan.
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