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Generally speaking, life insurance is the base for the financial protection of your family after your death. Life insurance is a broad term that is broken down into a number of types. One of these is limited pay whole life insurance.

In this article, we’ll be giving answers to every question that might come to your mind concerning limited pay whole life insurance. But before we proceed any further, we need to shed light on some important terms.

What is Limited Pay Whole Life Insurance?

With this plan, you will be paying a premium for a pre-determined period of time or until you reach a certain age. After that, you won’t be required to pay any premiums anymore. However, your death benefits will remain in place until the moment you pass away.

To your surprise, your cash value will keep growing without the need to pay any more premiums.

After understanding what a limited pay policy is, you may wonder what its advantages and disadvantages are. Let’s continue reading.

What Advantages Does it Have?

  • The first and most sought-after benefit of buying a limited pay policy is that you won’t be required to make premium payments until you pass away. The moment you are done paying your policy in full, you will not make payments anymore, but you will keep your coverage.
  • The second advantage of buying this policy is the high cash value growth you’ll witness. If this advantage is important to you, we’re happy to let you know that there’s no other policy which offers the same service.
  • It’s also considered a great way to financially protect your family members in the future. As soon as you are done paying your pre-determined premiums, your policy stays intact until your family takes the advantage.

What Disadvantages Does This Policy Have?

  • This policy is expensive. Because the policyholder is required to pay premiums for a limited period of time, they should pay more than they would in case of buying a traditional whole life policy. One way around this disadvantage is by lowering your death benefits or considering longer pay premiums so that you lower the rate.

How is Limited Pay Whole Life Different from Term Life?

The comparison between whole life and term life isn’t really apples to apples. The two policies are different and accordingly must be utilized in two different circumstances.

Limited pay whole life is a contract between the buyer and the insurer under which the policyholder pays pre-determined premiums for a limited period of time. As soon as that period ends, the policy is fulfilled, and accordingly, the policyholder won’t be required to pay any other premiums. In short, the benefit lasts, while the payment doesn’t.

Yet, the policyholder’s life insurance remains in operation and their beneficiary will receive a death benefit once they pass away.

Term life remains for a certain period of time. As soon as the term ends, the policy also ends. The policyholder can renew the policy. Yet, they will be required to pay higher premiums. Another difference is that the policyholder can turn their term life insurance into permanent life coverage shortly before this policy expires.

Benefits of its Cash Value

The whole life insurance cash value policies offer many benefits such as:

Their policy loans are considered income-tax-free: That allows you to borrow through life insurance loans. Once you need to borrow money, all you need to do is contact your insurer and request a loan.

The cash value increases income-tax-free: This allows gains in the cash account to increase tax-deferred, which in turn gives you the advantage of not paying tax on such gains in case you utilize the following benefit.

There is a feature to withdraw from policy tax-free: Cash value policy withdrawals are also tax-free up to the account’s basis.

The death benefit is tax-free: As the statement suggests, the money that your beneficiary receives after your death is tax-free.

How Can You Make the Premium Payments?

You can pay for your premiums on a monthly, quarterly, semi-annual, or annual basis. It takes from 7 to 20 years to pay your premiums in full.

Who Can Benefit from Limited Pay Life Insurance?

People go for this option because they want to financially protect their families in the long run. Those who look for receiving an income after retirement through their insurance policy’s cash value are recommended to purchase this type of life insurance.

If you are looking to buy a life insurance policy at a younger age, this plan isn’t recommended for you. This is because, at a younger age, you still have time to help compound the interest that is gained from the cash value. Whenever there is no limit to how much you pay into your policy, it will only keep increasing.

Death Benefit

All life insurance policies are founded upon the fact that they offer a death benefit. However, the policy offers, not only a death benefit but also living benefits.

Life insurance, in general, is a way to protect your family from any potential, financial loss after your death. It is more as it offers the protection which comes by receiving a death benefit and living benefits which provide something similar to personal income.

Limited Pay Whole Life Insurance Policy Types

Based upon the life insurance company you purchase your policy from when choosing limited pay whole life, you have many options to choose from.

The policy types are as follows:

Single-Premium Whole Life

This policy type is designed to provide policyholders with permanent coverage which is paid in a single lump-sum payment.

The benefits of single premium include getting leverage on your money and receiving a tax-free death benefit. However, this policy type is deemed an adjusted endowment contract wherein you lose a number of the cash value tax benefits.

Seven Pay Whole Life

Through this policy type, you are provided with permanent death benefit coverage based on a policy that is fully paid in 7 years.

7 pay whole life is mainly about the short time period to fund your policy without the need to change the policy nature.

Ten Pay Whole Life

This policy offers permanent coverage and takes 10 years to be paid in full. It’s a very common option that many people purchase.

You can go for a 10 pay whole life purchased with a term rider in order to boost your death benefit while waiting for the whole life policy’s death benefit to increase.

Fifteen Pay Whole Life

A fifteen pay policy offers coverage which remains your whole life with premiums paid in 15 years.

Some people choose this policy over the previous one since the premiums are low, yet you can still obtain the advantage of a fully paid policy in a comparatively short timeframe.

Twenty Pay Whole Life

Another common choice is the twenty pay whole life insurance policy. It offers lifetime coverage that is fully paid in 20 years.


Question 1: What tax advantages do relate to limited pay permanent life insurance?

This policy provides many tax-based benefits. For instance, death benefits that your beneficiaries receive after your death are exempt from taxes. In case you’ve bought a limited pay permanent insurance, its cash value gets occurred on a tax-defer basis. That is, you will not be required to pay taxes on such money until you receive your payout. Moreover, any loans you make will not be taxed at all.

Question 2: I purchased a term life insurance policy 4 years ago, and I want to change it into a limited pay life insurance policy. Can I?

Absolutely yes! Life insurance companies know that many events may arise. Those events can lead to any changes in the way you plan or deal with things. For example, beneficiary/s can change such as welcoming a new child or a grandchild.

All in all, a limited pay whole life insurance policy isn’t in fact suitable for all people. Yet, it’s a great alternative to traditional whole life policies. For some people, it’s unaffordable to make high premium payments for 10 or 20 years. However, as soon as your duty has come to its end, you’ll be more than happy you’ve made this decision.