Term plans can help you secure your family's financial future in a simple, yet reliable way. But certain terms, especially “Policy Term” and “Premium Paying Term” can make the buying process of a life insurance policy a bit complicated. So, let’s learn more about these life insurance terminologies and understand how the two work.
What is a Policy Term?
A term plan is a simple life insurance policy that is designed to safeguard your family's financial well-being in case of your untimely demise. Policy Term refers to the period your coverage stays active, making you eligible for the policy's benefits. To choose the right Policy Term, it is important for you to align it with your financial planning goals for the future. For instance, a 20-year-old Policy Term means that your coverage will last for two decades from the start date of the policy.
What is a Premium Paying Term?
The Premium Paying Term (PPT) is an important aspect of a term plan that defines the time frame during which a policyholder must pay premiums for their life insurance. This time frame is typically within the Policy Term but may sometimes be shorter, or in rare instances, longer than the Policy Term. The PPT plays a key role in determining the period during which a policyholder must pay premiums for their life insurance. In simple words, a shorter PPT will lead to higher premium payments while a longer PPT will spread costs over time. For example, opting for a 10-year Premium Paying Term will result in higher premiums, which may become a financial burden compared to a longer term that allows for more manageable payments. Choosing the right PPT makes sure that your life insurance policy aligns with your financial goals.
Things to Consider
Here are a few tips to help you make the right decision:
Long-Term Financial Planning:
It is crucial for you to factor in responsibilities like your children’s education, outstanding loan payments, getting investment plans for girl child or your own retirement. Assess the duration for which you need financial protection and find a well-matched Policy Term and PPT to make sure your policy offers financial protection when it’s needed the most.
Premiums and Coverage:
To cover your future needs, you must find a balance between a Policy Term and an affordable Premium Paying Term. It is not only important to address your current financial capacity, but also to predict your future financial capacity to choose a PPT that allows you to pay premiums comfortably throughout your earning years. Using a term insurance calculator can help you compare different premium options and choose the most suitable plan.
Life Changes:
Circumstances and situations change all the time. This is why choosing a Premium Paying Term that has space to accommodate any shifts in your expenses, income and financial priorities is a must. It is best to keep reviewing your policy to make sure that it aligns with your financial situation.
Read Policy Surrender Options Carefully:
A policyholder needs to understand the policy surrender options in depth. Flexibility is always beneficial, especially in case your financial situation changes or if you find a better product available in the market. Always choose a term insurance plan that offers reasonable surrender options so that you can adapt to your changing financial needs.
Policy Premiums:
Now that we have discussed the PPT, we must also address that it affects the total premium amount of the policy. A shorter PPT will need you to commit to higher annual premiums while a longer PPT can open doors for more affordable options. Always compare premium rates for different types of PPT and pick the one that suits your financial condition the most.
It is important to understand the difference between a Policy Term and a Premium Paying Term to make calculated decisions. Don’t think of it as just paying premiums, remember that it is also about your peace of mind for years to come. So, gauge your financial needs and invest time in understanding the policy term and premium paying term of different insurance plans before you choose one.
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