What are the Benefits of a Paid Up Policy?
A Paid Up Policy provides a number of advantages even after you cease making premium payments. Here's the way it assists:
● You remain insured: Even if you stop paying premiums, your policy continues to provide life insurance coverage, though the amount of coverage is reduced compared to when you were paying full premiums. This means your family still gets some financial protection.
Lapsed policy: First the policy lapses and then it converts to paid-up post acquiring surrender value.
● Low-cost: If you stop paying premiums and your policy has acquired a surrender value, it may convert to a paid-up policy as per the terms and conditions. This helps keep the insurance coverage active at a reduced level, easing your financial burden without losing the policy entirely.
● Bonuses might remain: In the event your cover has accumulated bonuses, they will possibly be added to your reduced sum assured depending on the terms and conditions of your policy.
● Helps in financial planning: Your family will still receive money (reduced sum assured) in case of your untimely demise.
● Tax benefits continue: You may still get tax benefits under Sections 80C and 10(10D) of the Income Tax Act, depending on the policy type and status.
What are the Paid Up Policy Conditions?
For a policy to acquire Paid Up status, there are certain requirements that need to be fulfilled. The following are the major conditions:
● Minimum premium payment: For a policy to acquire Paid-Up status, you must have paid premiums for a minimum number of years, as stated in your policy terms and conditions. If this requirement is not met, the policy may lapse.
● Policy term does not change: The policy maturity date does not alter. It will mature on the initial date, but with decreased benefit.
● No payment of future premiums: You do not have to pay any further premiums after the policy has become a paid up policy.
● Reduced sum assured:
The sum assured is reduced when a policy becomes Paid-Up, which happens under these conditions:
- The policyholder stops paying premiums.
- The policy has already acquired a Surrender Value, meaning the minimum required number of premiums has been paid (as per the policy terms).
- Instead of lapsing, the policy is automatically converted to a Paid-Up Policy.
● No new bonuses: Once your policy becomes Paid Up, new bonuses (if any) may not be added. However, past bonuses may stay, subject to policy terms and conditions.
How to Calculate the Paid Up Value of Life Insurance Policies?
The Paid Up value is the worth of your policy after it has attained Paid Up status. You can calculate it from a simple formula.
Paid Up value formula:
(Number of premiums paid ÷ Total number of premiums payable) × Basic Sum Assured + Bonuses (if any)
Example:
Let’s say:
- Your policy sum assured is ₹ 10,00,000
- You had to pay premiums for 20 years.
- You paid for only 10 years.
- Bonus added is ₹ 50,000.
Paid Up value = (10 ÷ 20) × 10,00,000 + 50,000 = 5,00,000 + 50,000 = ₹ 5,50,000
This means if something happens to you, your family will get ₹ 5.5 Lakh even though you stopped paying premiums halfway.
This simple Paid Up value formula can help you understand how much your family will receive later.
Paid Up Value versus Surrender Value
If you stop paying your premiums, you usually get two options:
Paid Up Value:
This keeps your policy active with a lower cover. Your loved ones still receive money (reduced sum assured) in case of your untimely death or upon maturity of the policy.
Surrender Value:
Here, you cancel the policy and take the money right away. You won’t get any future coverage.
| Feature | Paid Up Value | Surrender Value |
|---|---|---|
| Life cover | Reduced but active | No cover after surrender |
| Payout at death | Yes, based on Paid Up value | No |
| Immediate money | No | Yes |
| Useful when | You want some protection | You need urgent funds |
If possible, keep your policy as a Paid Up Policy instead of surrendering it.
Wrapping it Up!
Here are some final points to remember about Paid Up Insurance:
- A Paid Up Policy gives you some reduced coverage after the policyholder stops paying further premiums.
- The payout amount is less than the original sum assured.
- You can still enjoy some tax benefits and policy bonuses (subject to policy terms and conditions).
- It lets you keep your life covered, so you still get some protection and don’t lose the benefits you’ve already earned.
Paid Up Policy is a smart insurance feature that protects your money and your family’s future even when you cannot keep up with premium payments.
Always read your policy document or talk to your insurer to understand when your plan becomes Paid Up and what benefits apply.
FAQs
1. Should I buy Term Insurance or Whole Life Insurance?
Term Insurance is a type of life insurance that provides coverage for a specific period, such as 10, 15, or 20 years. It pays a death benefit to your family if you pass away during the policy term. Term insurance is typically affordable and focuses solely on providing financial protection.
Whole Life Insurance (or other traditional life insurance plans) offers lifelong coverage and usually includes a savings or investment component. These plans pay a death benefit whenever you pass away, and may also build cash value over time, which you can use during your lifetime.
2. Why should I learn more about insurance?
Insurance protects your family's finances after your demise.
- Your insurance plan provides both short-term savings and long-term financial advantages.
- Insurance plans offer policy benefits that help you save and accumulate funds for three common purposes: education expenses, wedding costs, and retirement needs, among others.
- Tax advantages from insurance programs help you save additional funds.
Analyzing different plans alongside reviewing essential details will lead you toward selecting the plan that suits you most. The better your understanding becomes; the better selection you can make for your life path.
3. How can I choose the right Term Insurance plan for me?
Start by thinking about your age, your job, and how much money your family will need if you are not there. The plan should give them enough to live safely. Choose a term that covers you till retirement or more. Also, check if the premium amount fits your monthly budget. Term Insurance plans are low-cost and give high coverage. Always check the features and read the terms and conditions. A simple, clear plan that fits your life is always the best option.
An ISO 9001:2015 
