Which premium paying term is suitable for term life?

You, as an investor, can choose any premium paying term as you see fit. However, since term insurance plans pay a death benefit only in case of death during the policy tenure, it only makes sense to choose a long tenure for your term life policy. There are insurance companies that are offering term insurance plans up-til 85 or 100 years of age. Also, any financial requirements like marriage of children for which your family may need financial support in case of your demise, can also be another reason for taking a longer coverage tenure so that you are covered for a longer period.

But, you must consider the flipside. Are longer premium paying terms a comfortable and practical option for you. Premiums might continue beyond retirement. Also, there are increased chances of policy lapse, this happens when you miss a payment or payments after some years. When the premium is unpaid, the policy lapses. Once the policy lapses, the plan pays no benefit and you lose the coverage.

There is a middle ground. Limited premium payment plans are term life insurance plans which allow you to pay premiums for a limited tenure while your coverage continues for a longer period. For instance, if you buy a term plan with a coverage term of 30 years and premium payment term of 10 years, you would have to pay premiums only for 10 years while the coverage would continue for 30 years. Thereby eliminating the risk of policy lapsing due to missed premiums on course of longer coverage tenures.

Since, limited premium plans collect overall premium in shorter span, therefore, they have higher annual premiums than regular premium plans. You can use this to your advantage by maximizing the deduction available under Section 80C of the Income Tax Act, where you can claim up to Rs 1.5 lakh from gross total income, provided this limit is not consumed by other tax saving investments.

Limited premium plans are also suitable for individuals who know that they will have a short career span. For example, sportsmen whose careers reduces with age, can opt for limited premium plans. It will free them from the responsibility of paying premium within a short time when their incomes are stable.