Limited Payment Life Insurance

Allows For A Shorter Payment Period

Limited payment life insurance, sometimes referred to simply as limited pay life insurance, is really a way of having the best of all worlds with a whole life policy. You pay a premium for a predetermined number of years and you have your policy for the rest of your life. Here is how these policies work.

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Limited Payment Life Insurance Explained

The Face Amount

This policy has a death benefit that is guaranteed to stay level for as long as you own it even if you choose to keep it until age 100. The face amount is usually paid out income tax free to the beneficiary of your choice. It can be paid in one lump sum or in the form of a monthly income. If you choose to have payment made in income form you have many options to choose from.

• Life Income
  
  Limited payment life insurance policy proceeds made as a life income is one of the many choices. If you make this choice the life insurance company will pay this income to your beneficiary for as long as s/he lives. Upon the death of this beneficiary there is no more income paid even if payment has only been paid for only one month.
  
  Look at it this way, if the beneficiary lived a long life the insurance company would be on the hook for a lot more than the face amount of the policy. On the other hand a short life would mean the heirs would lose. This in my humble opinion a life income payment with no certain is not a very good choice...
  
  A better choice would be a life income with a certain period. The proceeds of your life insurance can be paid out in life income form with, for example, 5 years certain, 10 years certain or 20 years certain.
  
  Let us say you chose to take a life income with 20 years certain your beneficiary would be paid a lesser income for his or her life but upon death, if death occurred after one year for example, the income has to be continued for another 19 years. To put it another way the income must be paid for a minimum of 20 years.
• Fixed Period Income
  
  A fixed period income simply works this way. You tell the insurance company to pay the proceeds of your limited payment life insurance policy to your beneficiary in equal amounts over a period of 10 years, for example, upon your death. The amount paid out would be more than the lump sum insurance amount.
• Fixed Amount Income
  
  The proceeds of your limited payment life insurance policy can also be paid to your beneficiary in fixed amounts. You tell the insurance company to pay, for example, $1000 per month to your spouse until the proceeds are exhausted. This always amounts to considerably more than had the payments been made in a lump sum.
• Interest Option
  
  You can choose to have the lump sum that would be paid upon your death held by the insurance company and only the interest paid out each year. At a given time in the future you would have the lump sum paid.

The limited payment life insurance policy is a whole life based policy and therefore has cash values which accumulates at a guaranteed minimal rate of interest. If you should be in need of cash you may take a loan from your policy which usually is limited to about 80% of the cash value.

If you are unable to come up with the premiums the automatic premium loan provision will kick in and use a portion of your cash value to keep the policy in force...

Your limited payment life insurance policy also accrues dividends. Dividends, however, are not guaranteed and depend on the performance of the life insurance company.

• If a dividend is earned by your limited payment life insurance policy it can be paid to you in cash. The life insurance company will mail you a check.
• Dividends can be applied to the reduction of premiums. The amount necessary to keep the policy in force would be less than the premium contracted for in that year.
• Dividends can be used to purchase paid up additions. Paid up additions are single premium policies of the same type as the base policy. They have cash values and participate in dividends if any dividends are declared.

Available waiver of premium rider and accidental death benefit rider can be added to your limited payment life insurance policy if you should so choose.

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