Limited pay life insurance is a type of whole life insurance that only requires you to pay premiums for a limited time. Common types of limited pay policies are 10 pay, 20 pay, and age 65 policies, where you’ll pay premiums for 10 or 20 years, or until you turn 65.
Once you’ve made all your premium payments, your policy will last for the rest of your life.
What is a limited pay life insurance policy?
A limited pay life insurance policy is a whole life insurance policy with a unique payment structure. As its name suggests, you only pay premiums on this policy for a limited period of time.
However, the benefits associated with a limited pay life policy don’t share the same limitations. These policies come with a guaranteed death benefit, which means your coverage will last for your entire life. When you die your beneficiaries will receive a lump-sum tax-free payout.
How whole life insurance works
Whole life insurance lasts your entire life and comes with a cash value component that earns interest over time in addition to the lump-sum payout that your beneficiaries receive after you die. Once your policy has accumulated enough cash value, you can take a loan against it or withdraw money from it.
Because of these two unique qualities, whole life is significantly more expensive than term life insurance — which is the most common type of life coverage and the best and cheapest option for most people looking to protect their loved ones financially in their absence.
Whole life is not for everyone, but it can be a good fit if:
You’re already maximizing your contributions to retirement accounts — like a Roth IRA or a 401(k) — and you’re seeking another investment option.
You have a high net worth and would like to use life insurance to cover estate taxes.
You have long-term financial obligations or coverage needs — for example, dependents who require lifelong care.
→ Learn more about how cash value life insurance works
Limited pay life insurance vs. standard whole life insurance
What separates a limited pay policy from other whole life policies is how the premiums work.
With a traditional whole life policy, you’ll have to pay premiums for the rest of your life to keep the policy active, which increases the risk that your policy will lapse — in other words, that it gets canceled and you lose coverage.
With limited pay, you’ll only need to make premium payments for a set period of time — usually 10 or 20 years, or to age 65.
If the primary beneficiary is available to receive the payout, the contingent beneficiary won’t receive any money.
Naming a contingent beneficiary isn’t mandatory, but you should consider naming one.
If you don’t name a contingent beneficiary and your primary beneficiary can’t claim the death benefit, a judge will decide where the money goes. This process can take months, and it means your loved ones might not get the financial support you left for them.
Naming a contingent beneficiary can ensure that the proceeds from your life insurance policy will go to the people you intended.
→ Learn what happens if your beneficiary passes away before you
Types of limited pay life insurance
Limited pay life insurance is defined by how long the premium payment period lasts. These are some of the most common types of limited pay policies on the market:
Type of limited pay policy | Premium payment structure |
Single pay | One lump-sum payment |
7 pay | Payments over seven years |
10 pay | Payments over 10 years |
15 pay | Payments over 15 years |
20 pay | Payments over 20 years |
Age 65 | Payments until you reach age 65 |
1. Single pay whole life insurance
Single pay whole life insurance is a type of policy where the full cost is paid in one lump sum. This can be a good option for anyone who acquires a large sum of money, like through an inheritance.
But it’s important to note that a single pay policy doesn’t have some of the tax benefits that other insurance policies have. For example, with this type of policy, if you withdraw money from the cash value or borrow against it, that money will be taxed as normal income.
This is because single premium whole life insurance is classified as a modified endowment contract (MEC), and this type of contract is not eligible for the same tax breaks as other insurance policies.
2. 7 pay life insurance
7 pay life insurance is a type of limited pay option where the insured person makes premium payments for seven years to pay for the policy in full. After seven years, no more payments will be required, but you’ll be eligible to receive the death benefit for the rest of your life.
A 7 pay policy makes it easy to keep the tax benefits of a whole life policy while paying its full cost in a rather short period of time.
3. 10, 15, & 20 pay life insurance
10 pay, 15 pay, and 20 pay life insurance policies work similarly to a 7 pay policy. Whatever payment period you put into effect, you’ll have that many years to pay your premiums.
For each of these policies, the total cost of the policy is expected to be about the same.
However, each payment you make in a 10 pay policy will be more expensive than a 20 pay or even a 15 pay policy with the same face value, because you’ll be paying about the same amount in premiums over a shorter period of time.
4. Whole life insurance paid up at age 65
Whole life insurance paid up at age 65 is limited not by the number of years that you make payments, but by your age. No matter how old you are when you get the policy, you’ll continue paying the premiums until you reach age 65.
After that, you’ll be eligible to receive the death benefit, but you won’t have to pay any more premiums.
How does limited pay life insurance work?
Limited pay life insurance is unique because while the death benefit will be effective once the policy is active and lasts until you die, the payment period is limited. With more traditional term or whole life insurance policies, you’ll pay premiums while the policy is active until the term ends or until you die.
Premiums
The premiums for a limited pay policy will be defined when the insurance company makes you an official offer. You’ll apply for the premium term that you want and the insurance company will offer you a fixed premium that will last for the term that you chose.
As long as you pay your premiums on time, your policy will remain active for the rest of your life.
Death benefit
The death benefit — which is the payout your beneficiaries receive after you die — for a limited pay policy will go into effect right away. Your coverage begins from day one and will last for the rest of your life, as long as you pay all your premiums on time.
There is no waiting period for your coverage to begin once you start paying your policy.
Cash value
Limited pay policies begin accumulating cash value as you make premium payments. Part of each premium you pay will go toward the cash value. Over time, the cash value will increase, both because you continue to pay additional premiums and because the value will grow with interest.
Who is limited pay life insurance for?
Limited pay life insurance can be a good option for people who need permanent coverage and have enough income to cover the full cost of a whole life insurance policy in a short period of time.
Pros of limited pay life insurance
Guaranteed level premiums With a limited pay policy, you know exactly what your premiums will be and how long they’ll last.
Guaranteed lifetime coverage As long as you make all your premium payments on schedule, you’ll enjoy the peace of mind of securing the death benefit. You won’t lose this benefit unless you cancel or cash out your policy.
Tax-deferred cash value accumulation The cash value associated with your policy will grow with interest, and you won’t be responsible to pay taxes on any gains until you cash out the policy — but whole life policies with a more traditional payment structure also offer this benefit.
Policy dividends Some limited pay policies offer dividends, so over time you could receive funds from the insurance company. If you’re eligible to receive these funds, you can use them to help pay your premiums, take them as cash, or leave the money with your insurer to accumulate more interest, like a high yield savings account. But yet again, some whole life policies with more standard payments may also offer dividends.
Living benefits Most limited pay policies come with living benefits. With living benefits, you’ll be eligible to receive a portion of the death benefit while you’re still living. To do this, you’ll have to experience a qualifying event like being diagnosed with a terminal illness.
Cons of limited pay life insurance
Pricey premiums. Whole life insurance is already significantly more expensive than term life, but limited pay’s unique payment structure means that the premiums you’ll pay will be even higher — you’ll need a lot of cash up front to cover the full cost of your policy.
Higher chances to miss a payment. Keeping up with payments from a limited pay policy might be harder due to its excessive cost — and if you fail to keep your policy in good standing, you’ll lose your coverage.
Limited cash value potential. With a traditional whole life policy, you’ll make payments and build up the cash value for the rest of your life — not just over a set period. If you live longer than expected, you could pay more in premiums but also build up a bigger cash value than you would with a limited pay policy.
How much does limited pay life insurance cost?
Limited pay life insurance costs vary based on the age you apply, the amount of coverage you get, your overall health, and the premium payment period you select.
A 30-year-old non-smoking male with no health issues could get a 10 pay whole life insurance policy with a $500,000 payout for $2,327 per month for 10 years. A 30-year-old female with the same profile could get the same policy for $2,192 per month over the same period.
10 pay life insurance rates
Age | Gender | $500,000 coverage amount | $1 million coverage amount | $10 million coverage amount |
|---|---|---|---|---|
20 | Female | $1,793 | $3,585 | $35,853 |
Male | $1,920 | $3,840 | $38,402 | |
30 | Female | $2,192 | $4,383 | $43,831 |
Male | $2,327 | $4,654 | $46,536 | |
40 | Female | $2,659 | $5,317 | $53,174 |
Male | $2,829 | $5,658 | $56,576 | |
50 | Female | $3,245 | $6,490 | $64,902 |
Male | $3,422 | $6,844 | $68,443 | |
60 | Female | $4,027 | $8,054 | $80,536 |
Male | $4,257 | $8,514 | $85,138 |
Methodology: Sample monthly rates are calculated for male and female non-smokers at a Preferred Plus health classification obtaining $250,000, $500,000, $1,000,000, and $10,000,000 10 pay whole life insurance policies offered through MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies available in all states. Rate illustration valid as of 01/01/2024.
A 30-year-old non-smoking male with no health issues could get a 20 pay whole life insurance policy with a $500,000 payout for $946 per month over 20 years. 30-year-old non-smoking female with a similar profile could get the same policy for $862 per month over the same period.
20 pay life insurance rates
Age | Gender | $500,000 coverage amount | $1 million coverage amount | $10 million coverage amount |
|---|---|---|---|---|
20 | Female | $649 | $1,270 | $12,702 |
Male | $720 | $1,414 | $14,138 | |
30 | Female | $862 | $1,698 | $16,982 |
Male | $946 | $1,861 | $18,609 | |
40 | Female | $1,137 | $2,239 | $22,385 |
Male | $1,247 | $2,455 | $24,551 | |
50 | Female | $1,516 | $2,995 | $29,954 |
Male | $1,642 | $3,241 | $32,408 | |
60 | Female | $2,099 | $4,158 | $41,577 |
Male | $2,289 | $4,532 | $45,318 |
Methodology: Sample monthly rates are calculated for male and female non-smokers at a Preferred Plus health classification, obtaining $250,000, $500,000, $1,000,000, and $10,000,000 20 pay whole life insurance policies through MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies available in all states. Rate illustration valid as of 01/01/2024.
A 30-year-old non-smoking male with no health issues could get a whole life insurance policy with a $500,000 payout fully paid up at age 65 policy for $673 per month. A 30-year-old non-smoking female with a similar profile could get the same policy for $614 per month. This means you’ll have to make these monthly payments from the start of your policy until you turn 65 years old.
Whole life insurance rates paid up at age 65
Age | Gender | $100,000 coverage amount | $500,000 coverage amount | $1 million coverage amount | $10 million coverage amount |
20 | Female | $90 | $407 | $785 | $7,808 |
Male | $99 | $456 | $885 | $8,809 | |
30 | Female | $131 | $614 | $1,194 | $11,897 |
Male | $143 | $673 | $1,315 | $13,107 | |
40 | Female | $205 | $977 | $1,917 | $19,136 |
Male | $225 | $1,074 | $2,107 | $21,032 | |
50 | Female | $383 | $1,858 | $3,671 | $36,675 |
Male | $414 | $2,005 | $3,961 | $39,572 | |
60 | Female | $1,321 | $6,529 | $12,994 | $129,904 |
Male | $1,415 | $6,985 | $13,895 | $138,909 |
Sample monthly rates are calculated for male and female non-smokers at a Preferred Plus health classification, obtaining $100,000, $250,000, $500,000, $1,000,000, and $10,000,000 whole life insurance policies fully paid up at age 65 through MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies available in all states. Rate illustration valid as of 01/01/2024.
What riders can you add to a limited pay life insurance policy?
Insurance policies will let you add riders or “add-ons” to your insurance policy, which will allow you to utilize some of your death benefit if certain events happen to you. Common life insurance riders include:
Accelerated death benefit insurance riders allow you to access a portion of the death benefit on your insurance policy while you’re still living if you meet qualifying criteria. These riders are automatically included with most life insurance policies at no extra costs, though the terms can vary depending on your policy. Typically, if you’re diagnosed with a terminal illness and given less than 12 months to live, you’ll be able to claim a portion of the death benefit while you’re still living.
Critical illness insurance riders protect you in the event that you’re diagnosed with a critical illness. The exact terms will be laid out in your policy, but if you’re diagnosed with an illness identified in your policy, you’ll be eligible to claim part of your death benefit while you’re still living.
Family insurance riders let you add extra protection to your insurance policy to protect your family in case your spouse or child dies. This can be simpler than getting a separate policy for your family member, but also could be more expensive.
Accidental death and dismemberment insurance riders add an additional benefit if you are killed or injured in an accident. In most cases, this rider is expensive and not worth the money, but if you work a dangerous job, it could be good for you to consider.
How to buy limited pay life insurance
Policygenius has a team of licensed agents who can help you compare your options for life insurance, guide you through the application process, and help you buy a policy.
Once you decide what type of policy you need, your agent will help you complete the required application documents, and guide you through the underwriting process to get an offer back from the insurance company.
Connect with an agent to get started on your application, get quotes, and find the best company for you based on your profile.
Apply for life insurance. Your agent will walk you through the application process and let you know if you’ll have to take a medical exam.
Go through underwriting, which is the process during which the insurer will evaluate your application details, health information, and lifestyle to determine how much you’ll pay for your policy.
Sign your policy and pay your first premium. After underwriting, the insurance company will extend you a final offer, which is when you’ll know your final rate. You’ll then sign your policy and pay your first premium for your coverage to be active.
Alternatives to limited pay life insurance
Here are other life insurance options to consider if limited pay is not the best fit for you.
Term life insurance is the most affordable type of life insurance in almost every situation. It only lasts as long as you need it and comes with few tax restrictions and regulations. It doesn’t accumulate cash value, but if you’re just considering life insurance for income replacement to protect your loved ones in your absence, term life is your best bet.
Traditional whole life insurance policies have all the same benefits of a limited pay policy, but the payment schedule is simpler and potentially more affordable. You’ll be making payments for the rest of your life, but they’ll be lower than what you could expect to pay with a limited pay policy.
Final expense life insurance offers a small amount of coverage to help with end-of-life costs. If all you need is a policy to cover funeral costs, final expense insurance is right for you.
Universal life insurance is a type of permanent coverage that lets you increase or decrease how much you pay toward premiums, and even cover those payments using the policy’s cash value. It can be a good fit for high earners trying to build a nest egg without entering a higher income bracket.
Variable life insurance is a type of permanent life insurance that allows you to invest the money from your cash value. While it has a higher potential for growth, it also carries a higher risk.
Frequently asked questions
Does limited pay life insurance provide lifetime protection?
Yes. Limited pay is a type of permanent life insurance. As long as you make all your scheduled payments, limited pay life insurance will last for your entire life.
What are some examples of limited pay life insurance?
7 Pay, 10 Pay, and 20 Pay — where you pay the full cost of a whole life policy in seven, 10, or 20 years — are all examples of limited pay policies. Another example is Pay to age 65 policies, where you make payments from the start of your coverage until you turn 65 years old.
Is limited pay life insurance more expensive than traditional whole life insurance?
Both types of policies cost about the same, but since limited pay policies are fully paid up in a shorter period of time, their premiums are usually higher. On the other hand, traditional whole life insurance premiums might be lower, but you’ll be paying them for the rest of your life.
How much you actually pay will depend on how long you live. If you die five years after getting the policy, you’ll pay a lot more with a limited pay policy. If you live for 40 years after getting the policy, you’ll probably pay more for a traditional whole life policy.
