Paid-Up Endowment Policy: Here’s All You Need To Know About

Most life insurance plans cover the insured for their whole lives. However, some allow for full payment up to a certain age. A paid-up policy is life insurance that remains in force until the insured's death or the policy is terminated if all premium payments have been made in full and the insured is clear of any payment obligations. The category of typical insurance plans includes paid-up policies. The total insured is capped at the value that has been paid. It is computed by multiplying the amount insured at maturity by the ratio of insurance premiums to total premiums that were required to be paid under the terms of the policy.

What Is An Endowment Policy?

An endowment plan is a type of life insurance that combines an insurance policy with a savings strategy. If the policyholder survives out the policy term, it helps you save money regularly over a specified period of time in order to receive a lump sum amount at policy maturity. The insurance policyholder will get their money covered on a particular day in the future in accordance with the conditions and terms of the insurance. However, in the event of the policyholder's untimely passing, the insurance company will pay the nominee for the policy the amount covered (plus any incentives, if any). Additionally, it is helpful to protect oneself and family after retirement or to satisfy other financial demands like paying for a child's education, marriage, or home purchase.

What Is Paid-Up Endowment Policy?

When you cease making premium payments, your sum insured has a paid-up value. If you don't pay the full amount due in premiums, the sum insured determined at the beginning of the plan is lowered. The term "Paid-Up Value" refers to this lower amount promised. 

The Sum Assured of a life insurance policy is lowered in proportion to the number of payments made and the overall number of premiums of the plan when the premium is not paid on time and the policy expires. This happens when the payout for an endowment policy is not timely paid. A Paid Up Value is added to a Paid Up Policy. If a policy must be returned or a loan must be taken out, the percent of said Paid Up Value is used.

Paid-Up Endowment Policy Example

Let's use an example to better grasp this. The Paid Up Value of this policy would be lowered to the Sum Assured of Rs 5,00,000 if the Policy Term is 25 years, the Sum Assured is Rs 25,00,000 and the individual has paid premiums for 5 years.

Paid-Up Amount= [ (Premium paid till now X assured amount ) / total premium ]

Paid-Up Amount= [ (5X2500000)/25 ]= Rs. 5,00,000

Until the expiration of the term or the policyholder's death, whichever comes first, this insurance coverage will remain in effect. The insurance coverage will be paid up to the Paid-Up Value or the reduced sum promised. The proportional bonus is also available for the Paid-Up policy.

Changing A Policy For Endowments To "Paid-Up"

The insurance gets "paid up" when you do not cancel the coverage but stop making premium payments. However, you cannot do this until you have been a premium payer for a minimum of three years. Your policy's terms will determine the number of years. The precise number may be found in your policy paperwork. At the conclusion of the policy term, you would receive a sum known as the "paid-up amount," which would be less than the sum insured.

Conclusion

There are several justifications for wanting to leave endowment insurance. It may become difficult for you to continue paying the premiums as your income or expenses may alter over time or as your obligations may grow. Otherwise, you could discover that insurance won't offer a significant return on your investment. You have two choices in this situation: to cancel the insurance or to make it fully paid up.

If a policyholder chooses the paid-up option, they can keep their insurance open as long as they stop making premium payments. However, take aware that this option often only becomes available once one has made payments for at least three years. However, for specific years, verify the policy wording. According to the premiums paid, the amount you would get at maturation would be decreased. Therefore, one should make the right choice involving investments.

Also read: Endowment Plans: Your Partner To A Secured Future

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