Premium paying term and policy term

What are premium paying term and policy term?

The policy term is the length of time a life insurance policy stays in force: the cover applies during this period and, for savings plans, the maturity benefit falls due at its end. The premium paying term (PPT) is the number of years over which the policyholder has to pay premiums. In a regular pay policy, the two are the same. In a limited pay policy, the PPT is shorter than the policy term, for example "pay for 10 years, covered for 20". In a single premium policy, the PPT is effectively one payment.

Both terms are fixed when the policy is issued and appear in the policy schedule, the benefit illustration and the Customer Information Sheet.

How premium paying term and policy term work in India

The IRDAI (Insurance Products) Regulations, 2024 and the Master Circular on Life Insurance Products (June 2024) set the limits. As of October 2026:

Other rules that hang on the paying term:

• Level premium. For individual policies, the premium chosen at the start stays level for the whole PPT.
• Reducing the premium. After three completed policy years for pure risk products, or five for other products, an insurer may let the policyholder cut the premium by up to 50% of the original annualised premium, with benefits revised and the minimum sum assured respected. Once reduced, it cannot be raised again.
• Changing PPT or term. Insurers may allow the policyholder to alter the PPT or the policy term within the product's limits, if the change fits the board-approved underwriting policy and the premium rates for it are approved.
• Short paying terms. Where the PPT is under five years, the expense limit for single premium business under the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 applies to each annualised premium, and the special surrender value becomes payable as soon as the first full year's premium is received.
• Surrender values. The guaranteed surrender value schedule for regular premium plans (30% in year 2, 35% in year 3, 50% in years 4 to 7, rising to 90% in the last two years) is tied to the policy term, not the PPT, so a limited pay policy that has finished paying still builds surrender value over the rest of the term.
• Paid-up value. If premiums stop, the paid-up sum assured is the sum assured multiplied by the ratio of years paid to the full PPT. See paid-up value.
• Advance premiums. Renewal premiums can be collected in advance only within the same financial year, or up to three months ahead across a financial year, and are adjusted only on the due date. Commission is paid only after that adjustment.

Example

A customer buys a 20-year savings plan with a 10-year PPT and an annual premium of ₹60,000. Total premiums are ₹6 lakh. If the customer stops after 6 years, the paid-up sum assured is 6/10 of the original. If the customer completes all 10 payments, the policy is fully paid and continues for the next 10 years with no further premiums, building surrender value and, in a par plan, bonuses.

What premium paying term and policy term mean for distribution

• Match the PPT to income. The paying term should end before the customer's income is likely to fall, usually at retirement. A 25-year PPT sold to a 45-year-old salaried customer sets up a lapse in the customer's late 60s.
• Avoid the "pay 5, get 10" confusion. Limited pay plans are often described in shorthand that customers misread as a 5-year investment. The adviser should state clearly that the money is locked until the end of the policy term, and show the surrender values in the early years.
• Affordability over the full PPT. A sale is sound only if the customer can pay every year of the PPT. IRDAI's September 2026 consultation paper treats selling a regular premium policy without explaining the consequences of discontinuing it as mis-selling, and proposes commission clawback on mis-sold policies.
• Commission design. The same consultation paper proposes first-year commission caps that rise with the PPT, from much lower caps for PPTs under 5 years up to the highest caps for PPTs of 10 years or more, with renewal commission rising with persistency. It also proposes that the policy term be at least 10 years or the PPT, whichever is longer, and that PPTs under five years be allowed only for non-linked non-par products. As of October 2026 these are proposals open for comment.
• Persistency tracking. Long PPTs mean many renewal years for persistency to break down. Short PPTs reduce lapse risk but carry lower commission and, under the expense rules, are treated more like single premium business.
• Servicing the paid-up years. In limited pay policies, the years after the PPT ends have no premium contact. Insurers and partners that still review these customers, for nominations, contact details and changing needs, keep the relationship alive until maturity.