If you are thinking about selecting a term plan or life insurance, then there are many aspects that you must consider. One such aspect is the payment plan options for the insurance premium. Life insurance policies offer flexibility in terms of premium payment.
You can select the kind of payment mode you want for your term plan, based on your current financial plan and long-term goals. There are various types of insurance plans, like term plan, retirement plan, endowment plan, money back plan, etc., which offer protection and can help you save tax at the same time.
To know how much premium you have to pay, you can use life insurance calculator and figure out the payment tenure. For example, if you can afford a premium of up to Rs 20,000 to Rs 30,000 per month for a specific life cover, then you can opt for a tenure accordingly and complete your premium payments in a time-span that fits your goals.
Similarly, there are other types of payment modes that you can select from. Life insurance calculators help you with an amortization table, which details your premium payment for the sum assured and the number of years you enter. You can go through all your options and select the payment frequency that suits your financial planning.
As defined under the Income Tax Act, there are various sections under which life insurance premiums can help you save tax. While you are selecting the payment mode for a term plan or a life insurance plan, you must also keep the tax-saving benefit in mind. It is worth understanding the tax position before choosing a payment mode, but treat the common claim that a particular mode delivers “tax-free returns” with caution. How often you pay does not by itself change the tax treatment; what matters is whether the policy meets the conditions set out in the Act, and a single large premium can in fact push a policy outside the Section 10(10D) exemption.
Alternatives To Regular Term Plan Premium Mode
Before we look at the alternative premium payment modes, let’s quickly check out the regular term plan premium mode.
Regular payment option
In a regular payment option, you can pay your premium monthly, quarterly, half-yearly, and even every year throughout the policy period. For most people who are salaried, it gets challenging to pay the premium every month. This is where other payment modes turn out to be quite helpful.
A life insurance calculator can help you calculate the premium amount, and you can then set-up your finances accordingly. With this type of payment mode, you can continue your policy at ease without facing a financial burden.
If you are looking for alternatives to the regular payment option in a term-plan, then here are a few things you could try.
Limited payment option
This type of a payment plan is best suited for people who don’t like premium payments dangling above their heads for long, for people who have suddenly seen a spike in their income, or for someone who has savings that can make quick payments.
In this method, you have to pay premiums for a shorter period while enjoying the insurance benefits for a more extended period. If you are retiring before your term plan expires, then this payment mode is ideal for you. The premium amount, however, will be more than what you would pay in the regular option.
A life insurance calculator can show you how much more premium you’ll have to pay via this option. You will generally face no expenses on this insurance policy once you retire since your premiums are already all paid up.
Single payment option
As the same suggests, it is a one-shot payment of your insurance premium. An insurance calculator can show you the difference between paying an annual premium for 20 to 30 years and a one-shot premium for your policy.
For example, a 30-year-old person, who wants a sum assured of Rs 1 crore, will be paying Rs. 10,000 per year approximately, for 30 years. Using a life insurance calculator, you can calculate how much premium you will have to pay if you choose the single payment option.
However, if you make a single, one-time premium payment, it would come up to be a few lakhs, saving you a lot of money. This shows how much more money you will end up paying as a premium for your insurance.
At the end of the day, which insurance plan suits you and your family is the one you should go for. With the help of a life insurance calculator, you can plan your finances in advance and choose the payment option that seems most comfortable.
It is crucial to do research and select the right kind of payment policy so that you can enjoy the later years in peace and not worry about buying a life cover.
One point that applies to any tax benefit on a life insurance policy: the Section 80C deduction on premiums is available only under the old tax regime, not the new one, which is now the default. Exemption of the proceeds under Section 10(10D) carries its own conditions in the Act. Check which regime you file under before treating tax relief as part of the decision.
