Will limited payment term plan suit you?

Those unsure about paying premium for the full policy term can go for this option

Life insurance plans are need-based products offering customised solutions. You can choose the term and the benefits as per your requirement. One such flexible option offered by life insurers is ‘paying the premium for the limited period’. Under the limited premium payment term (PPT) feature, the policyholder is allowed to pay the premium for a limited period of time, say, 5, 10 or 15 years though the cover is offered for the entire policy term.

The other options insurers provide are regular pay (where the premium payment term is equal to the policy term) and single pay.

Limited PPT option suits people who are unsure about their ability to pay the premium for the full term of the policy. Sports people, movie stars or self-employed individuals can look at limited PPT when they are at the prime of their career, so that they don’t have to worry about it later in life when their earnings dwindle.

Even others who have a lump-sum on hand and want to put it to productive use can look at limited PPT option in a life insurance policy.

Here, we discuss the features of the limited PPT option offered in the online term plans. Online term plans, including HDFC Life 3D plus, Max Life Online Term plus, ICICI Pru iProtect Smart, Edelweiss Tokio Life TotalSecure+, Aditya Birla Sun Life Insurance DigiShield, Kotak Life e-Term and Tata AIA Life Sampoorna Raksha offer this option to the policyholders.

The features of the limited PPT vary among insurers. The limited pay term ranges from five to 40 years. For instance, in Edelweiss Tokio Life – TotalSecure+, one can choose the limited pay term — five, 10, 15, 20 and 25 years. ABSLI DigiShield Plan provides five and seven years, while Tata AIA Life Sampoorna Raksha allows you to choose only five and 10 years for limited pay. In most plans, the policy term is fixed at least five years higher than the limited PPT.

Opt for lower PPT

On the surface of it, annual premium on a ‘limited PPT’ policy appears higher than the premium on a ‘regular pay’ policy. But if you work out the total premium payable for the period in the two cases, you will note that the premium outgo is lower for the same SA policy if you chose the limited PPT mode. Sample this:

Under HDFC Click2Protect 3D Plus, for a 35-year-old male non-smoker who wishes to have ₹1 crore term cover up to 75 years, the annual premium payable for the PPT of 25 years is ₹21,397. So the total premium payable for 25 years is ₹5.43 lakh. But if he chooses PPT of 10 years, the annual premium payable is ₹39,054 and he will end up paying only ₹3.9 lakh for 10 years.

Watch out

The premium payable on life insurance policies is eligible for tax exemption up to ₹1.5 lakh under 80C. But if you choose limited PPT, your annual premium outgo will be high and clubbed with other investment products eligible under 80C; you may actually exceed the ₹1.5 lakh limit and lose the tax benefit.

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