Difference Between Policy Term And Premium Paying Term

The sedentary lifestyles prevalent today have led to unhealthy diets and lifestyle practices. Given these circumstances, it is wise to opt for a life insurance policy to ensure your family's financial security. However, before diving into the world of life insurance policies, you must have an idea about the various processes and common terms associated with them to have an informed approach. With regard to life insurance, policy terms and premium-paying terms are some of the terms involved in the intricacies of how insurance works. So, keep reading to learn more about the key differences between policy and premium-paying terms before buying insurance.

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What is a Policy Term?

Whenever you apply for a life insurance policy, there is a period during which you tend to remain financially covered under the plan. That duration of your life insurance plan is called the policy term. Likewise, you will have to pay the pre-decided premium amount throughout the policy period to remain covered.

For example,

For a whole life insurance policy, the policy term is for the entire lifetime of the insured, up to the age of 99, as long as premiums are paid on time.

On the other hand, term insurance policies allow you to select the coverage period or policy term based on your needs. This can be 5, 10, 20 or even 30 years. If you pass away during this chosen term (while the policy is active), your designated beneficiaries will receive the death benefit or sum the insurance company assures.

Importance of Choosing the Right Policy Term in Term Insurance

As you can see, ‘Policy term’ is an important factor in term insurance policies. You must choose this period carefully based on your needs because term insurance policies only offer coverage during your chosen term. Once the policy term ends, your beneficiaries can no longer claim the death benefit.

For instance, you may buy a term insurance plan with a policy term of 35 years. This means you will be financially covered for those 35 years, which is the policy term of your plan. So, after the tenure of your existing insurance plan ends, you can renew (if the option is available) or purchase another one to secure yourself.

Importance of Buying a Term Plan with Flexibility

Securing a term plan with extensive flexibility is invaluable in a world where change is constant and life’s needs evolve over time. One such highly flexible plan is the ACKO Life Flexi Term Plan, which allows you to adjust coverage, policy terms, and more based on your changing needs.

Let’s look at some of the key reasons why having a term plan in place is a critical step you must consider today.

Affordability

A term plan is an affordable life insurance option that provides coverage for a specific duration. The robust financial security it provides for your family makes it an ideal option. You need to pay the premiums, and your dependents will receive the necessary financial assistance when unfortunate events in life come unannounced.

A Secured Future

Life is surrounded by uncertainties, and with changing circumstances, your financial needs can evolve. Thus, with the ACKO Life Flexi Term Plan, you can be assured to receive financial aid that is beyond traditional coverage. This plan offers the flexibility to let you customise your coverage to meet your ever-changing requirements in the future.

Financial Support

When you are the sole breadwinner of your family, your absence can land your family with an immense financial burden. A term plan comes into play during such difficult times and stands strong as the biggest financial support for your dependents. You can also add riders such as accidental death, disability income, and critical illness to enhance your financial protection.

Tax Benefits

Term insurance is subject to tax deductions. Besides ensuring your family's financial stability, you can receive term insurance tax benefits under Section 80C, Section 10 (10D) and Section 80D of the Income Tax Act, 1961.

What is a Premium Paying Term?

No matter what insurance plan you opt for, you should pay the pre-decided premiums on time based on your chosen frequency. Premium paying term refers to the duration over which you are required to pay premiums for your life insurance policy.

There are three variants of premium paying terms that you can opt for, which include the following:

Single Premium Paying Term

As the name suggests, through the single premium paying term system, you should be paying your premium in a lump sum for a single time to remain financially covered throughout the policy term of your insurance plan.

Regular Premium Paying Term

Under the regular premium paying term system, you need to make your premium payment after every regular interval to remain financially covered. You can choose the frequency of this regular interval as per the terms and conditions applied.

Limited Premium Paying Term

By proceeding through the limited premium paying term system, you will have to make periodic payments of your premiums up to a predetermined duration, usually lower than your insurance plan's policy term. Nevertheless, you will remain covered until the end of your policy tenure.

What is the Difference Between Policy Term and Premium Paying Term?

Even though they are often considered similar, there are some key differences between policy terms and premium payment terms. Individuals who are opting for a life insurance policy must be aware of these differences to take an informed approach to getting tailored life cover for themselves.

Let’s understand the factors where these two terms differ from each other with the help of the following table:

Factors	Policy Term	Premium Paying Term

Objective and Meaning	Policy term is simply defined as the period during which your life insurance plan remains active. It can also be called the lifetime period of your insurance plan.	Premium paying term is the duration during which you need to pay premiums to keep your insurance plan active. In case you do not pay the premium on time, the policy term of the plan can be terminated.
Validity Period	You can choose the tenure or validity of your insurance plan based on how long you want to remain financially covered. Thus, a policy term of 30 years means you will be covered for 30 years.	Insurance companies offer various options, including single, regular and limited premium paying terms. You can choose any one of these based on your financial stability to make the payments.
Impact After Expiration	For term life insurance, coverage ends, and no sum is returned. However, for other types of policies, such as endowment or whole life, benefits or sums assured may be paid out based on the policy terms.	After the expiration of a premium-paying term, you would stop paying the premiums, even though your life cover plan will remain intact.

From the table mentioned above, you can clearly understand how and where these terms differ in a life insurance plan. However, whenever you decide to invest in a life insurance policy, communicate with the insurance company to resolve any doubts you may have about these terms.

What to Consider While Choosing Policy Term and Premium Paying Term?

The importance of the policy term and premium paying term is undeniable when it comes to purchasing a life insurance plan. However, you need to remember a few things before investing in a plan. These include the following:

Financial Planning

You need to be cautious about the duration you require for your life insurance policy. For that, make sure to consider potential financial expenses like children’s education, marriage, outstanding loan repayments, retirement, etc. Effectively evaluating your financial needs can lead you to the suitable policy term and premium-paying term for you.

A Balance Between Premiums and Coverage

You must assess your current financial stability and how it might change in the times to come. This way, you can decide on the type of coverage you want and the maximum premium you can afford. Thus, you need to maintain a balance between what you can afford and what you require.

Impact on the Premiums

Remember that the premium-paying term you choose will directly impact your premium amounts. If you choose a shorter term, you will pay higher premium amounts, while doing the opposite can be a more budget-friendly option. So wisely assess your requirements while setting the premium-paying term.

Adaptability to Changing Circumstances of Life

Since life is dynamic and circumstances can change over time, you need to set your premium-paying term accordingly. It should accommodate potential life changes like income shifts or any other major financial changes so that the period aligns with your current state without losing its objective.

Policy Surrender Options

Having the flexibility to surrender your policy is always a benefit for policyholders. It helps you decide and manage your finances based on your current financial status. So, make sure to carefully understand the policy surrender option before purchasing a life insurance plan.

The Bottom Line

To sum it up, the difference between policy and premium paying terms is one of the crucial things to understand before engaging yourself in insurance policies. Having a clear understanding of all such intricacies, terminologies, their meaning, and their work in an insurance plan is a must before becoming a policyholder. So make sure to conduct thorough research and proceed accordingly with the life cover of your choice.

Frequently Asked Questions

Given below are the commonly asked questions regarding the difference between policy and premium paying terms:

What happens if I am unable to pay premiums during the policy term?

If you are unable to pay the premiums on time, you might be given a grace period or a certain time during which you can pay the due premium. However, if you are still unable to pay the premium during the grace period, the insurance provider can terminate your policy.

You can even be given a revival period to pay certain charges and revive your policy. You need to inquire about such factors before investing in a policy.

What can be the lowest premium paying term for an insurance policy?

As per the revised guidelines mandated by the IRDAI or Insurance Regulatory and Development Authority, the minimum premium paying term can be five years for a life insurance policy.

What is a premium due date?

A premium due date indicates the date until which you are supposed to pay all your due premium amounts. Once you pay a premium, you need to make your next payment on its due date.

Can I get any discounts on my premiums?

The discounts you get on your premiums usually depend on several factors, like the type of insurance plan you have opted for, your chosen premium payment frequency, etc. Usually, policyholders with yearly premium payment frequency can get the most discounts than the ones with regular schedules. You need to clear these out at the time of issuing the policy.