Understanding The Differences Between Policy Term And Premium Payment Term
Published On Sep 15, 2021 10:00 AM By InsuranceDekho
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Each term insurance plan covers the insured person for a certain period of time. This time period is called the policy term, that is the duration till which your policy will remain active provided you are paying your term insurance premiums on time. To sum up, the policy term is the lifetime of your term insurance.
Premium payment term is the total number of years the policyholder has to pay the premium. For the ease of the policyholder, insurance companies today provide a lot of flexible options as to how and when they wish to make the payment.
Difference Between Policy Term And Premium Paying Term
While the "policy term" meaning is quite straightforward, it is often confused with another insurance-related topic - "premium paying term". Both of these terms refer to time periods and are closely associated but there is a marked difference between them and thus, should not be used interchangeably.
Policy term refers to the period for which your term insurance policy will remain active. This term is determined at the time of purchasing the insurance plan. It is used to refer to the period during which the life insured is provided guaranteed coverage by the insurer.
However, the premium-paying term refers to an altogether different concept. It refers to the period during which the policyholder is required to pay the premiums for the term insurance plan. In most cases, the premium paying term is equal to the policy term, which is why the two terms are often confused. However, some insurers allow the premium paying term for a term plan to be shorter than the policy term.
For example, if you purchase a term insurance plan to provide coverage for 40 years, the policy term will be 40 years. However, your insurer might allow you to pay off the premiums for your term plan over a period of 20 years. Hence, in such a case your premium paying term will be just 20 years.
While it is essential to find the right insurer and the suitable term insurance plan, it is just as important to have a clear idea of the appropriate policy term for you and your beneficiaries. In order to make the most of your term insurance plan, make sure that your policy term is well aligned with your age, liabilities and life goals.
You may also like to read - Advantages Of Limited Premium Payment Term Insurance Plans
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.