Half of all American adults-or 106 million individuals-lack life insurance. That is concerning, since it can be a valuable safety net for your loved ones, should the unforeseeable happen. 

One of the main reasons people cite for not having life insurance is that they cannot find a policy that fits their coverage needs, budget, and other financial goals. Fortunately, there are many types of life insurance available. 

One option is a limited-pay life policy. This article explains how it works. Keep reading to find out if it may be an option for you when you purchase insurance. 

What Is a Limited-Pay Life Policy?

A limited-pay life policy is a special form of permanent life insurance. “Permanent” means that it does not expire but lasts for the policyholder’s entire life, as long as the premiums are paid. 

With most types of life insurance you pay premiums as long as the policy is active. Limited-pay policies are different. You pay them for a fixed period (usually seven, 10, 15, or 20 years), but coverage persists for the rest of your life.

Like other types of life insurance, premiums depend on the level of coverage you need, as well as your overall health, age, lifestyle, and health risks. Premiums for a limited-pay life policy also will vary based on the number of years you wish to pay. The shorter the duration, the higher the premium.

What Are the Benefits of a Limited-Pay Life Policy?

One of the biggest advantages of a limited-pay life insurance policy is that it guarantees coverage for the rest of your life. It also ensures premium amounts for a fixed period. Together, these allow most people to pay for life insurance while working and not during retirement. 

Also, limited-pay policies accumulate a cash value. This grows, tax-deferred, and often at a faster rate than inflation. This means you can borrow against it, although unpaid loans could reduce the death benefit amount. 

Are There Any Drawbacks to a Limited-Pay Life Policy?

There are a few potential disadvantages to a limited-pay life policy that you should consider. One is higher premiums.

Keep in mind that this is a relative, based on how long you live. For instance, someone with a 15-year plan that lives for 30 more years after it is fully paid may end up paying much less than another type of whole-life policy

Another potential risk of a limited-pay life insurance policy is that it could have adverse tax implications, namely becoming a “modified endowment contract.” This involves overfunding life insurance accounts, which is determined by the IRS. A tax or insurance professional will be able to warn you if this risk applies to your circumstances when you go to buy life insurance.  

Find a Premium Life Insurance PlanToday

Now that you understand how a limited-pay life policy works, you can determine if it is the right option for you. A reputable insurance consultant can further advise you on finding the right policy for your financial goals.  

RBP is a full-service insurance agency that has been finding quality policies for clients for more than 60 years. We offer a variety of life insurance options, including limit-pay ones. Reach out to us today to discuss the best plan for you and your family.