Things You Need to Know About Limited Pay Life Insurance

Besides term life, whole life, and universal life insurance, there is another one named limited pay life policy. This plan has a limited assured payment period compared to a traditional whole life policy.  

Typically, there are various forms of life insurance programs available with different premium payment requirements for a limited period. An insurance broker can explain all the types of limited pay insurance in detail.

Despite the underlying variances, all limited pay policies function based on the same principle. In this post, we will discuss the definition, features, and eligibility of limited pay life policies.

Limited Pay Life Insurance: More Insights

Usually, an insured person needs to pay premiums up to the age of 65, or for a period of10 years or 20 years for limited-pay life insurance.

Often some prospective consumers interested in buying a life insurance plan may think of having a specific number of payments than their age. For them, life insurance companies came up with a limited pay life insurance with a shorter premium payment period than the insured’s potential lifetime.

You may often hear an insurance broker or insurance company talking about “short pay policies” which are another name for limited pay insurance. Although there are various types of policies available with a shorter payment period, the most known limited pay insurance programs are below:

• Paid-up at age 65whole life insurance
• 10 Pay whole life insurance
• 20 Pay whole life insurance

You can figure out the basic function from the names of the listed policies. A paid-up at 65 policy requires the insured person to pay premiums until his/her age of 65. The uniqueness of this policy is that the actual payable premiums will vary according to the age of the insured person at the time of the policy issue.

It means contrary to a 10 or 20 pay whole life policy where the insured will pay premiums for specific years, a paid-up at 65 policy will have a different period for premium payment.

In a 10 Pay whole life policy, the insured needs to pay 10 premiums. After making the 10 payments, the policy will have a guaranteed paid-up for the remaining years of the policy holder’s life. 

Similarly, a 20 Pay life policy goes by the same principle. The only difference is that the insured will have to pay 20 premiums to reach the paid-up status.

Besides, a few other limited pay life insurance policies allow the insured person to choose the exact number of years for paying premiums. This is because these policies aim to meet the unique needs of the insured in terms of the number of premiums. For example, a limited pay policy may have 15or 9 premiums before reaching the assured paid-up status. The insured can select the number of required years to pay the premiums and will not be able to change it later. You can consult an insurance broker for more clarity on this matter.

Also Read: Life Insurance Questions You Need To Consider

Features of This Life Insurance Policy

Due to the premium payments for a shorter period for achieving an assured paid-up value, limited pay life insurance carries the basic feature of a conventional whole life insurance plan. Similar to a whole life plan, the insured is a limited pay insurance policy needs to fulfill certain criteria to get the paid-up status.

Besides limited pay insurance plans, a certain category of universal life insurance programs also have similar features. These types of insurance policies offer an assured benefit upon the death of the insured after paying the required premiums and thus are called Guaranteed Universal Life Insurance or GUL.

Another crucial aspect is that a limited pay insurance plan will require a larger amount of premiums, as it requires fewer premium payments to reach the guaranteed and fully paid status. If we assume that an a36-year-old individual wants to enroll in a whole life policy worth $1 million, he needs to pay a little more than $12,000 every year.

On the other hand, in the case of a 10 Pay life insurance policy, to receive death benefits worth $1 million it would require the same 36-year-old person to pay more than $28,000 annually. Although the insured needs to pay more for a limited pay insurance plan, there will be a guaranteed coverage after the specified number of premiums. In a conventional whole life plan, a policyholder cannot achieve the fully paid status before making payments up to the age of 65.

Besides, a limited pay life insurance policy accumulates cash value faster than a regular whole life plan. This is because the insurance company collects larger premium amounts for a limited-pay insurance plan. It means limited pay insurance plans provide a higher cash value through their total rate of return against the paid premiums.

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If you are already thinking about opting for a life insurance policy that requires a premium payments for a specific period, a limited-pay insurance plan is ideal. To learn more about it, an insurance broker can walk you through all its features and outcomes. 

If achieving an assured and fully paid status in a specific period is your main goal, a limited pay policy will be ideal for you. Besides, such a life insurance policy works similar to traditional whole life insurance when it comes to getting the cash value. You can even withdraw cash or take out a loan against the accumulated value. Limited pay insurance also comes with tax benefits.

It would be ideal for you to consult an insurance broker to understand the benefits and suitability of various life insurance policies. As a reputable and long-service insurance brokerage firm in California, we offer our clients the best possible options to fulfill their long-term financial security.

Fill out this online form to get a free insurance quote, or call us at our toll-free number 1-888-505-7988.We would be more than happy to help you any time!