Difference between insurance period and payment period

0
37

In general, many people think that the insurance period (guarantee period) and the period during which premiums are paid (payment period) are the same. However, some life insurance policies have different insurance periods (coverage periods) and premium payment periods (payment periods). It may seem a little complicated, but by knowing the difference in the payment period, you can also choose a premium payment method that suits you. Let’s take a look at the features and cautions of each.

What is the insurance period and payment period?

In other words, the insurance period is the period of coverage. If the insured dies or becomes severely disabled during the insurance period (guarantee period), the death benefit will be paid.
If the insured dies or becomes severely disabled after the period of insurance (guarantee period), the death benefit will not be paid.

The payment period is the period during which premiums must be paid in order to continue the insurance contract.

Depending on the life insurance policy, the insurance period (guarantee period) and the period during which premiums are paid (payment period) may differ.

For example, in whole life insurance, the insurance period (protection period) is for the whole life (whole life), but the premium payment period (payment period) is for a fixed period such as until the age of 60 or 65, or for 10 or 15 years. There are products that pay for a lifetime, and products that pay for a lifetime. Regarding which payment method to use, there are products that are decided in advance and products that can be selected at the time of subscription.

In Figure 1, please check the features and points of caution between paying until age 60 (prepaid at age 60) and paying for the rest of your life (whole life payment).

Figure 1 Payment period for whole life insurance (60 years old and whole life payment)

60 years old paid lifetime payment
Features After the age of 60, no premium payment is required.
And the death benefit lasts for the rest of your life.
Monthly premiums will be lower than those paid at age 60. *
important point Monthly premiums are higher than whole life insurance. Since you will continue to pay premiums for the rest of your life, you will continue to pay premiums even if you only receive pension income.

Which payment method to choose is case-by-case and cannot be generalized. The reason for this is that if you no longer need the death benefit for whole life insurance, you can cancel the insurance contract and use the cash surrender value. In general, whole life insurance has a cash surrender value when it is canceled, and depending on the timing of cancellation, you can receive a cash surrender value that exceeds the total amount of premiums paid.
In general, the shorter the payment period (the sooner you finish paying), the sooner the surrender value will exceed the total amount of premiums paid to insurance agent, but the monthly premiums will be higher, so consider your household budget and life plan. However, it is a good idea to consider which payment method is suitable for you and then select it. If the policy is canceled within a short period of time after the insurance contract is concluded, there will be no or very little cash surrender value.

*From the perspective of the total amount of premiums paid, there is a possibility that the amount of premiums already paid at age 60 (short-term payment) will be less than that of the whole life payment. The reason is that short-term premiums are discounted, so if you live a long life (for example, if you live to the average life expectancy), the total amount of premiums paid may decrease.