Limited payment life insurance is a kind of whole life insurance where you pay premiums for a specific period instead of for your entire life. It provides lifelong coverage and includes a savings element, just like regular whole life insurance. The difference is that you only make payments for a predetermined number of years.
For instance, State Farm has limited payment life insurance options with terms of 10, 15, or 20 years. While the premiums might be higher than those of standard whole life policies, you only pay them for a set time. After that, your coverage stays active for life.
How It Works?
Limited payment life insurance offers all the perks of whole-life coverage, like a guaranteed death benefit, a cash value savings feature, and fixed premiums. The difference is that instead of paying for the policy your entire life, you settle it over a specific number of years.
In regular whole life insurance, the cost is spread out based on your current age and how long the insurer thinks you’ll live. For instance, if you’re 35 and expected to live until 82, they’d calculate your payments over a 47-year span. With limited payment life insurance, though, the costs are divided over a fixed term, usually between 10 to 20 years.
Even though the premiums for limited payment policies can be higher because of the shorter payment period, you pay off the policy quicker, and the cash value accumulates faster. Once you’ve fully paid it off, you’ll have lifelong coverage without any more premium payments.
Pros
- Limited payments
- Permanent coverage
- Cash value accrual
Cons
- Higher premiums
- Opportunity cost
Conclusion
Limited payment life insurance gives you whole life coverage without the need to pay premiums for your entire life. This option might work well if you’re comfortable with the higher payments for the next ten to twenty years. Just make sure to think about the advantages compared to what you could earn by investing your money in other ways. A financial advisor can guide you through your choices and help you figure out the best path to achieve your financial goals.