What are the Differences Between Policy Term and Premium Paying Term?

difference between policy term and premium paying term

Policy terms and premium paying terms seem alike, but they are two different aspects of an insurance policy. While purchasing a policy, you will come across these two terms and choose their tenure. Hence, before you proceed with your purchase, you should ideally understand the differences between policy terms and premium paying terms to make informed decisions.

What Is the Policy Term?

Policy term is the duration up to which you will stay covered under an insurance plan. Nevertheless, you will have to pay the policy premiums on time to stay covered until the end of the policy term or tenure.

Insurance providers let you choose a term on your own accord. For example, a health insurance policy generally comes with a tenure of 5, 10, or 20 years to 35 years. When the policy term ends, you will not be able to claim your policy benefit. You will have to purchase another policy to secure yourself after the policy tenure ends.

What Is the Premium Paying Term?

Premium paying term refers to the total period or number of years till which you need to continue paying your premium. You need to pay it till this term is over according to the frequency chosen by you.

The different premium payment terms are as follows:

  • Single Premium Paying Term: You need to pay a single premium in lump sum to get coverage up to your policy term.
  • Regular Premium Paying Term: You need to pay a renewal premium after a regular interval to stay covered under your existing policy.
  • Limited Premium Paying Term: You will have to pay periodic premiums up to a predetermined duration, which is much lower than the policy term. However, you will get coverage till the end of your policy term.

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Now that you know what policy terms and premium paying terms are, you can properly understand the difference between these two phenomena.

Differences Between Policy Term & Premium Paying Term

Here is the table demonstrating the difference between policy term and premium paying term:

Parameters Policy Term Premium Paying Term
Validity Period It is the period until which a policy remains active. In other words, it is the lifetime period of an insurance plan. Premium paying term is the duration throughout which you will have to pay the premium of your policy. In case of non-payment of the premium, your policy may lapse.
Objective Behind Choosing the Term Individuals need to choose a policy term after keeping in mind how long they want to stay covered. Policy Term of 20 years means that you will be covered under the policy for 20 years. Major insurance companies generally offer different options, including single, regular, and limited premium paying terms. Individuals can choose one considering the period till which it will not be financially hectic for them to pay the premium.
Impact After Expiration When the policy term ends, the insurance companies will absolve their liabilities to return the sum assured/insured. When this term ends, your obligations to pay the premium will end. Even though you stop paying premium, your life cover will remain intact.

With a clear understanding of the differences between policy terms and premium paying terms, you can now purchase your policies keeping in mind what will suit you the best. You can carefully choose the period until which you would like to pay your premium and the period till which you would like to stay covered under your insurance policy.

FAQs about Difference Between Policy Term and Premium Paying Term

Can I partially withdraw my fund before the policy term?

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Yes, you can partially withdraw your aggregated fund from your life insurance policy before the policy term. For this, the activation period of your policy should be more than 5 years. Further, you also need to ensure that your policy is active and you have paid all your premiums.

Will my policy term end if I do not repay a premium?

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Yes, your policy term can end if you do not pay your renewal premium amount. Nevertheless, before marking your policy lapsed, your insurer will provide you a window to revive your policy for up to a specific ‘revival period’. By paying a certain reinstatement charge within that period, you will be able to regain the policy benefit for up to the pre-existing policy term.

What is the minimum premium paying term?

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As per the guidelines, the minimum premium paying term is 5 years.

What is referred to as a premium due date in a term insurance plan?

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Premium due date refers to the day till when you should ideally pay the renewal amount or the premium. Premium paying term is basically the period between the past premium due date and its next premium due date.

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Disclaimer

  • This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
  • All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
  • Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.