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What Is A Paid-Up Insurance Policy?

Jun 06, 2018 | 2 years ago | Read Time: 2 minutes | By iKnowledge Team

A life insurance policy is a long-term contract which requires you to pay premiums for a specified tenure. Except single premium plans, other plans require premium payments either for a limited tenure or for the entire duration of the plan tenure. That is why, when it comes to life insurance, the first thing which strikes most of you is the underlying premium payment. With the policy running for a long tenure, regular premium payments feel like a burden. But what if I tell you that you can take premiums out of the picture and still let your policy continue? Wouldn’t you like it?

This is when you can opt for a paid-up insurance policy.

The brass tacks of paid-up insurance policy

If a life insurance policy is in a paid-up state, it means that though the premium payments have stopped, the plan remains active. The other benefit is that you or your family can still expect to receive the sum assured at the time of maturity or if you don’t outlive the policy term.

Requirements of making a policy paid-up

There are certain conditions which need to be fulfilled if you want to make your policy paid-up. These conditions depend on the type of policy you have. Here are the requirements –

In case of traditional plans

Paid-up is allowed under traditional plans depending on their premium paying terms –

  1. For limited premium plans, you have to pay at least two full years’ premium.
  2. For regular premium plans, you have to pay at least three full years’ premium.

In case of ULIPs

If you have a ULIP, you have to pay at least five years’ premium amount to make your policy eligible for becoming paid-up.

If that’s not done, the policy is deemed to have been surrendered. The company then pays the surrender value and terminates the plan.

Consequences of a paid-up policy

  • The plan runs even if it is in a paid-up state. However, the sum assured reduces.
  • If you have a unit linked plan, the applicable charges, like fund management charges, mortality charge, administration charge, etc. are deducted from the fund value even if your policy is in a paid-up state.

To sum up

Making your policy paid-up is a good way to continue your life insurance plan. But do remember that the sum assured amount reduces. Secondly, there are no more bonus declarations.

However, a paid-up policy is a good choice for those of you who are stuck in a wrong life insurance plan. You can invest your premium amount elsewhere while continuing the existing plan at a reduced paid-up value.

Advt. no.: IA/MAY 2018/4014

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