Limited Pay Life Insurance: What You Need to Know

Shawn Plummer

CEO, The Annuity Expert

What is Limited Pay Life Insurance?

Limited pay life insurance is a type of whole life insurance that allows you to prepay for the entire cost of your coverage for a set number of years. You may select limited pay life insurance if you have a whole life policy but want to pay for the full cost of your premiums for a certain period instead of over a lifetime.

Traditional permanent life insurance premiums are paid for the whole duration of an individual’s life. When choosing the limited pay whole life option, the payment length must be determined at the initial purchase of the policy. Premiums are typically paid over the first 10 to 20 years.

You may pay for your premiums monthly, quarterly, semi-annually, or annually if you select to do so in a restricted time period—typically 10, 15, or 20 years.

There is no option of allowing their policy’s cash value growth to eventually pay for the premiums. Instead, they pay for the cost of the policy in its entirety over time.

For those who bought permanent life insurance later in life and want to stop funding their policy but still want the cash value, this payment option could be particularly beneficial.

In some cases, money coming from a qualified retirement plan such as an IRA can be used to fund a limited pay life insurance policy.

Limited Pay Life Insurance Examples

Who Is Limited Pay Life Insurance Perfect For?

When an individual picks this option, it is usually because they have acquired a whole life policy late in life. If you want to receive a monthly income from your policy’s cash value or dividend payment during retirement, limited pay life insurance is a smart alternative since it eliminates the need to pay a premium throughout retirement.

If you’re buying life insurance before retirement, limited-pay coverage should be avoided. This is because a younger person has more time on their side to compound the interest earned from the cash value. It will simply continue to grow when there are no restrictions on what you may put into your policy.

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Cash Value

With a limited pay whole life policy, the cash value benefits remain. Cash value is vital since it allows any individual to acquire liquidity at any age or stage of their life.

Owners of life insurance policies can access liquidity through a policy loan, which means that the cash value in their original policy is still earning interest.

Death Benefit

A death benefit is included in all life insurance plans, but a death benefit in addition to living benefits makes whole life coverage better.

The majority of individuals are familiar with life insurance, which is defined as the expense of insuring your family or designated beneficiary from financial loss in the event of death. Whole life insurance goes far beyond what most people think it entails, providing both death benefit security and living benefits that can help you pay for expenses while alive.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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