Yes! You Can Have Life Insurance For Your Entire Life While Only Paying Premiums For A Few Years
Many people avoid whole, or permanent, life insurance because most policies of this type require the individual to pay premiums until their death. However, this is not necessarily the case.
In some instances, a life insurance policyholder can find a plan that only requires them to pay premiums for a defined period of time, such as 3, 5, or 10 years.
While the premiums will be higher, it can be a relief to some people to know that they do not have to pay on their policy forever, especially in their senior years when they will have a diminished income.
You don’t buy life insurance because you are going to die, but because those you love are going to live.
— Unknown Author
Things To Know About Limited Pay Whole Life Insurance Policies
Paying for only a certain period of time on a whole life insurance policy is called a limited pay policy. While limited pay policies are great, there are some things you must know, such as:
- What is the difference between a whole life policy vs. a term life policy?
- Limited pay plans are sometimes reserved for those in good health.
- Premiums will be higher than a conventional life insurance plan.
- Make sure the insurance is good from Day 1.
- Not all insurance companies offer limited pay policies.
- Use of an insurance agent, while not required, will help you navigate your options.
Lets learn a little more about each of these…
What Is The Difference Between Whole Life and Term Life Insurance?
There are a number of types of insurance policies, but the two most popular are whole life insurance and term life insurance. This article has a good explanation of both, but to summarize, whole life insurance is a policy that is good for your entire life. As long as you continue to pay your premiums, you beneficiaries will receive a payout upon your death. The flip side is that you must pay your premiums for your entire life. For many people, this is a terrifying thought.
Term life insurance policies only have a payout if you die before a certain age, such as 60 or 65. Since the policy expires at a certain age, you only pay premiums until you reach that age. Because the policy doesn’t have a guaranteed payout, the premiums are lower than a whole life policy.
Many people accumulate enough savings during their life that they don’t believe they’ll need whole life insurance, and instead just want protection for their family in the event they die before they have had the time to save. This is the allure of a term policy.
Both types of policies are good options. It’s just a matter of which best fits your situation.
Limited Pay Policies Are Sometimes Reserved For Those In Good Health
Some insurance companies will only allow people in good health to purchase a limited pay insurance policy. Carriers like this will exclude people that have diabetes, cancer, heart problems, hepatitis, and more.
Every insurance company is different, and some are more lenient than others. Most will still allow you to be covered in one way or another, just not with limited pay options.
A good conversation with your insurance agent is the best way to fully understand your options.
Most life insurance companies will allow you to be covered one way or another.
Limited Pay Premiums Are Higher Than Conventional Premiums
As you might expect, since you are only paying premiums for a defined amount of time your premiums will be higher than if you are paying for the rest of your life.
What this means is that if you die during your payment period, you will have paid too much (assuming your family receives the full benefit, which we’ll go into in a bit). If you die after your payment period, then there is a chance that you will pay less than you would have under a typical whole life policy.
Since the premiums are higher, do your homework to determine if a limited pay policy really makes you financially better off. Just because you pay for less years doesn’t mean you’ll pay less money.
Consider these monthly rates for a 50 year old who buys a $10,000 whole life insurance plan. These rates are from an actual insurance company that my agency works with.
As you can see, while the premiums under a limited pay plan stopped after 10 years, the policyholder paid over $3,100 more than he would have under a conventional whole life policy.
A policyholder would have to pay conventional premiums for more than 18 years before he would pay what he paid under a 10-year limited pay plan.
Did he win by taking the limited pay plan? It depends on when he died. If he dies within 18 years then he spent too much money. If he lives longer than 18 years, then he saved money.
Make Sure Life Insurance Is Good From Day 1
The payout on most limited pay plans is good from Day 1. Even if you have only paid 1 premium, if you die the next day, your family will receive the policy’s full face amount.
However, not all limited pay plans are like this. Some of them only pay a percentage of the face amount, while others just return the premium paid plus a little interest.
Make sure you fully understand how your life insurance policy works and what your beneficiaries will receive.
Not All Insurance Companies Offer Limited Pay Plans
When you go looking for life insurance, don’t assume that your favorite insurance company will offer a limited pay plan. Some do, some don’t. And those that do will sometimes require good health.
Even if you can’t find a good limited pay plan, you will still be able to get some life insurance, even if you have to pay a little bit more for a guaranteed issue life insurance plan.
And who can help you out with all of that?
A Good Life Insurance Agent Will Help You Navigate Your Options
The internet has made it much easier to buy things on our own. Insurance is one of those things. However, there is some nuance that is required to buy the right insurance policy for you and your family. Expertise is still required.
This is where a good insurance agent comes in handy. Your agent will be able to talk you through various options and make sure a limited pay plan is right for you.
Agents work on commission, but you won’t get a better rate by cutting out the agent. The insurance company will just pocket that commission themselves.
Permanent Life Insurance Doesn’t Have To Mean Permanent Premiums
While it is possible to have a permanent life insurance policy that doesn’t require premiums to be paid for the rest of your life, you need to make sure that it makes sense for you and your family.
Also make sure that you understand the financial risk/reward for buying a limited pay whole life insurance policy. The last thing anyone wants is to spend money on something that isn’t worthwhile, so do your due diligence with your agent to buy the right plan.
Life insurance is one of the best ways to show your family you love them. Death will come to all of us, and we need to make sure we financially protect our family one way or another.