Limited pay life insurance is for an individual who owns a whole life insurance policy but chooses to pay for the total cost of their premiums for a limited number of years. With the limited pay life insurance option, you pay premiums in the first 10, 15, or 20 years of ownership, but the benefits last a lifetime.
Permanent life insurance requires premium payment for an individual’s entire life. However a policy’s growth can eventually offset the premiums due. If choosing the limited pay whole life option, it must be determined at the initial purchase of the policy. When electing for limited pay life insurance, an individual opts out of allowing their policy’s growth to eventually pay for their premiums. Instead, they pay for the cost of the policy in its entirety over time.
This payment option can be especially beneficial to those who purchased permanent life insurance later in life and want to stop funding their policy, but still receive the cash value.
When are Limited Pay Life Insurance Premiums Due?
By choosing to pay for your premiums in a limited timeframe—either 10, 15, or 20 years—you can do so monthly, quarterly, semi-annually, or annually.
Who Does Limited Pay Life Insurance Benefit?
When an individual chooses this option, it is typically because they have purchased a whole life policy later in life. If you are looking to receive an income during retirement through your policy’s cash value or dividend payment, then limited pay life insurance is an excellent option to prevent having to pay a premium during retirement.
If an individual is purchasing a policy at a younger age, limited pay life insurance is something that should generally be avoided. This is due to the fact that a younger person has time on their side to assist in compounding the interest earned from the cash value. When there are no limitations to what you can pay into your policy, it will just keep growing.
The Cash Value Benefit
Regardless of whether or not a whole life policy is limited pay, the cash value benefits still exist. Cash value is crucial because it helps any individual, old or young, and at any time they choose, to receive liquidity.
Policy owners can access liquidity through a policy loan, which means that the cash value associated with their initial policy is still earning interest. The opportunity that cash value insurance provides for money—simultaneous use and interest earned—makes the financial product invaluable.
The Death Benefit
All life insurance offers a death benefit, but a death benefit in addition to living benefits makes whole life insurance superior.
Life insurance as most people know it is an expense that only involves protecting your family or designated beneficiary from financial loss in case of death. Whole life insurance is much more, offering both the security that comes by having a death benefit and living benefits that can provide an abundant personal economy.
Watch: Know Your Retirement