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All You Need To Know About PaidUp Insurance Policy

Published On Dec 29, 2022 10:00 AM By InsuranceDekho

We often buy an insurance policy to safeguard ourselves during financial emergencies that may happen in the future. However, in difficult times, paying an insurance premium can become a financial burden for policyholders. Suppose the policy period is 20 years, and due to any financial burden, you don’t wish to continue the insurance policy. Wondering if all your previous premium payments will be lost too? No, because with a paid-up insurance policy, you can stop paying the premiums but continue to enjoy the benefits of the policy. Read on to find the meaning and benefits of a paid-up insurance policy. 

What Is Paid-Up Insurance Policy?

A paid-up insurance policy is a feature offered by insurance companies to help policyholders keep enjoying the policy benefits. However, the only condition is that the value of the sum assured reduces up to the number of days until the premium amount is paid. Usually, when the policy is continued on the paid-up value, the policyholders don’t lose the benefits of life insurance. 

Key Features Of Paid-Up Insurance Policy

Listed below are some of the benefits of a paid-up insurance policy. 

  • There are numerous benefits that you can enjoy through a paid-up insurance policy even when your sum assured is reduced. 
  • At an older age, you need not buy new policies at higher premiums as your family members are still covered under the paid-up insurance policy. 
  • You are still eligible to get the bonus earned until the premiums were paid. 
  • You can avail of loan benefits once the policy gets its surrender value. 
  • Receive the paid-up sum assured amount either in lump sum or in installments according to your choice. 

What Are the Conditions for Obtaining Paid-Up Value?

Here are some conditions that a policyholder must satisfy to acquire a paid-up value. 

  • You have to pay a two-year premium if your policy duration is less than 10 years. 
  • A policyholder must pay 3 years premium in full if the policy duration is more than 10 years. 
  • Your policy cannot participate in the profits of the company once it receives the paid-up status. Thus, NCB would be included in the reduced sum assured amount. 
  • Riders attached to your standard insurance policy would receive any paid-up value. 
  • ULIPs with a lock-in period will acquire the paid-up value only when that period has ended. 

How Is a Paid-Up Life Insurance Policy Calculated?

The sum assured is reduced under a paid-up policy period when you don’t pay the premiums for the forthcoming policy duration. The reduced sum assured paid-up value is calculated by taking into account several factors, including the premium paid, the premium due, the policy's basic sum assured, and the earned bonus amount. 

Therefore, you can use the following formula to calculate the paid-up value of your life insurance policy: 

Paid-up value = Sum assured x (No. of premiums paid/ No. of premiums payable) 

Let’s understand the workings of paid-up insurance with an example. Ramesh bought a life insurance policy for a sum assured of Rs. 10 lakhs. According to his policy terms, he had to pay the premium for the next 20 years, but he stopped due to some financial emergencies. The paid-up value is calculated on the basis of the above-mentioned formula. 

Paid-up value = 10,00,000 x (10/20) = Rs. 5,50,000/- 

Thus, Ramesh will continue to get the sum assured of Rs. 5,50,000/- from the insurance company even if he is not paying the premium for the policy. 

Who Can Opt For Paid-up Insurance Policy?

Anyone who wants to remove payment of insurance premiums from their budget can opt for a paid-up insurance policy. In addition to this, listed below are some individuals who can buy a paid-up insurance plan. 

  • Individuals who are trying to simplify their retirement budget after retiring. 
  • Having financial difficulties and urging need to reduce their spending. 
  • Redirect the money spend on premiums towards other objectives. 
  • Invested in other assets and don’t want to invest in long-term life insurance policies. 
  • Anyone who is ready to drop rider benefits associated with the standard insurance policy. 

Paid-up Value vs. Surrender Value: Which is Better?

If you don’t need money urgently, the paid-up value would be more astounding and advantageous than the surrender value. It will make sure that your loved ones remain financially protected even when you are not around them. 

Wrap Up 

A paid-up insurance policy will keep you covered even when you are not in a position to pay the remaining premiums of the policy. However, not all insurance companies provide this feature to convert a life insurance policy into a paid-up insurance plan. Therefore, it is crucial to check with your insurer if they provide this feature. Aside from that, a person with a low cash value is ineligible for a paid-up insurance policy.

Also read: Max Life Smart Plus Plan: Why Should You Buy This Term Insurance?

Which Critical Illnesses Are Covered Under the ICICI Pru iProtect Smart Plan?

Disclaimer

This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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