A paid-up life insurance is a life insurance policy that is paid in full, remains in force, and you don’t have to pay any more premiums.
It stays in-force until the insured’s death or if you terminate the policy. Paid-up life insurance is only an option for certain whole life insurance policies. A whole life insurance policy offers life insurance coverage for the whole life of the insured individual. Premiums stay the same and the death benefit is guaranteed as long as you continue to pay the policy premiums.
2 Types of Paid-Up
Whole life insurance policies have a paid-up provision that works in two ways.
#1- Pay Premiums In Set Schedule
The policy becomes paid-up once the policy owner satisfies the premium payments necessary for paid-up status. Once the policy is paid-up, it’s guaranteed to remain in effect for the rest of the insured’s life.
Whole life insurance policies come with a schedule of required premiums. The premium payment period will tell you the number of premiums the policy owner must make to satisfy the paid-up feature of the policy. For instance, if your policy is paid up at age 65, you don’t have to pay premiums after age 65 . It will remain in force, accumulating cash value and earning dividends (if participating in dividends), and provide a death benefit.
#2- Reduced Paid-Up
The policy becomes paid-up when the policy owner chooses to trigger the reduced paid-up feature of their whole life policy before reaching the end of the premium paying period. They can choose the paid-up status with a lower death benefit. Once the policy is paid-up, it’s guaranteed to remain in effect for the rest of the insured’s life.
The life insurance company will evaluate the policy’s current cash value and calculate the death benefit amount supported by that current cash value amount. This newly calculated death benefit will be less than the original death benefit and becomes the effective death benefit after choosing the reduced paid-up option.
The Bottom Line
Paid-up life insurance means your whole life insurance policy is paid in full, remains in force, and you don’t have to pay any more premiums.
