September 1st, 2007 | 
Author: 
Dono asked:
What is the purpose of limited premium payment term life insurance? Is it so that the insurance companies can get hold of your premiums over a shorter period, or does it actually work out cheaper in the longer term for the policyholder? I appreciate that you may chose the premium term to be limited if you are close to retirement, but let’s ignore that case for now.
Lashanda Liukko
What is the purpose of limited premium payment term life insurance? Is it so that the insurance companies can get hold of your premiums over a shorter period, or does it actually work out cheaper in the longer term for the policyholder? I appreciate that you may chose the premium term to be limited if you are close to retirement, but let’s ignore that case for now.
Lashanda Liukko
Posted in Insurance | 
Tags: Insurance, Insurance Companies, Limited, Policyholder, Premiums, Retirement, Term Insurance, Term Life Insurance
you dn’t mention if you are civil serive if you are it takes 6 weeks to get this if you are dead for your spouse. its horrible but if you are retired csrs that is ok at least it pays more then its worth and if you use like prodential that is one good one and get the 10,000 it can pay fast and good for your funeral. i just went thorugh one and had no idea how hard it is to get this stuff butyou have to do this and its smarter to buy it then waitting around for stuff.
It builds cash value, which is basically like an investment–you can draw on it at any time. Also, the death benefit payout stays the same no matter how long you own the policy (unlike the ones that go down the older you get).
The advantages are that the premiums are paid for a shorter duration, and the cash value with the savings component grows more than in a straight life policy plan. The down side is that you pay much higher premiums (because there is a shorter duration to pay them than in a straight life policy).
Some other disadvantages are that the protection component decreases quite a bit more than in a straight life because the savings component increases. Also, although the policy owner does not pay premiums after the premium paying period is over, he/she does pay in other ways. The interest on the savings component is used to offset the policy and to continue the protection (some of the interest is used, reducing your end payout). Also, some companies may charge more for the coverage in a limited-payment life insurance plan than in a straight life insurance plan.
When you choose a premium-paying period for a policy that covers you for the whole of your life, it is like choosing the period over which to pay off your mortgage. The quicker you pay if off, the higher each payment will be. If you can say with certainly that you will be able to afford $X per annum in fifty years as easily as you can today, then go for the longer period. If you suspect that your your highest earning years lie immediately ahead of you, go “limited pay.”
A limited pay policy is beneficial to anyone that expects to live a long time. I for example bought one when I was 26…becuase of my family history I expect to live well into my 80s if not 90s, so rather than paying for a lifetime, I will pay a extremely lower amount going this route.
The total I will pay for my policy is roughly $12,720 ($53 x 12 months x 20 years). Any payments I make beyond the 20 years go in the tax sheltered investment account. Benefit amount is $100,000.
Had I gone with a universal life or whole life policy at that age from the same company, I would be paying roughly $40…at that rate, after 26.5 years this route works out to be more expensive, you can do the math on what $40/month over the 50-60 years it would be until I would die, but it works out to at least twice the price over the long run.
The company I set mine up with isn’t even the cheapest on the market either. I could get another one today for roughly $38/month, but I’m currently uninsurable due to a pending surgery. After the surgery I’ll be setting up a larger one as a tax shelter for retirement.
Limited pay typically works out a fair amount cheaper in my experience.
When it comes to term insurance I know of nothing that is limited pay. Term insurance is “renting” your insurance and you pay on a monthly, quarterly, or annual basis (It is often cheaper to pay annually.) until the 10-year, 15-year, etc. term is up. After that period the insurance is gone.
Often times limited pay is spoken of when dealing with whole life insurance, or other kinds of permanent insurance, like variable, whole, and universal. I’d run the numbers for your situation, but it should be cheaper, but that doesn’t mean you should do it. Consider the interest you can get on your money in a life insurance policy. For whole life, it’s probably around 3%. For variable life, maybe 8% overtime. My point is this: where do you want your money tied up? If you like the guarantees of whole life insurance and the guaranteed cash values, great, but a CD can offer that same benefit, less the death benefit of many times the cash value of course. Same with the variable insurance, you may get a good return, but you can also get that through mutual funds or stocks.
Hope this helps.
Best,
Anna
You’re looking at it backwards.
Any type of “whole life” policy, including limited premium payment life, is NOT going to be the cheapest, long term. HOWEVER, it IS the ideal product to meet SOME insurance goals.
If the policy owner knows that they will be able to pay for the next five years, but might not want to pay after that, but will want the coverage to continue (example, a grandparent nearing retirement age), then the limited premium payment policy is probably the right one.
First set the goal, THEN select the product.
If the GOAL is savings, investment, cash accumulation, then LIFE INSURANCE is NOT the best tool for the job. Life insurance is a crappy savings/investment/cash accumulation tool.
But it DOES serve a real need.Just not THAT one.