Paid-Up Insurance
Paid-up insurance is a life insurance policy that requires no further premium payments because the cash value has grown enough to cover all future costs, or it was purchased as a nonforfeiture option.
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Exam Tip
Paid-up = no more premiums required. Reduced Paid-Up = nonforfeiture option with SMALLER death benefit but lifetime coverage.
What is Paid-Up Insurance?
Paid-up insurance is a permanent life insurance policy that requires no additional premium payments. The policy remains in force for life with a guaranteed death benefit, funded entirely by the accumulated cash value.
How Insurance Becomes Paid-Up
| Method | Description |
|---|---|
| Premium Completion | All required premiums paid (e.g., 20-pay life) |
| Nonforfeiture Option | Convert existing policy using cash value |
| Paid-Up Additions | Dividends used to purchase additional coverage |
Reduced Paid-Up Insurance
As a nonforfeiture option:
- Original policy's cash value purchases smaller permanent policy
- Death benefit reduced from original amount
- No more premiums required
- Coverage guaranteed for life
- Still accumulates cash value
Paid-Up Additions (PUA)
- Available with participating whole life policies
- Dividends buy small amounts of single-premium whole life
- Each addition is fully paid-up
- Increases death benefit and cash value
- Popular dividend option
Paid-Up Status Comparison
| Type | Premiums | Death Benefit | Cash Value |
|---|---|---|---|
| Paid-Up Addition | None (dividend-funded) | Small additions | Grows |
| Reduced Paid-Up | None (from nonforfeiture) | Reduced | Grows |
| Limited Pay Whole Life | None (after pay period) | Original | Grows |
Benefits of Paid-Up Insurance
- No more premium payments required
- Guaranteed lifetime coverage
- Continues to build cash value
- Can borrow against cash value
- Provides certainty of coverage
Study This Term In
Related Terms
Whole Life Insurance
Whole life insurance is a permanent life insurance policy that provides lifetime coverage with fixed premiums, a guaranteed death benefit, and cash value that grows at a guaranteed rate.
Cash Value
Cash value is the savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals during the policyholder's lifetime.
Nonforfeiture Options
Nonforfeiture options are provisions in permanent life insurance policies that allow policyholders to access accrued cash value if they stop paying premiums, rather than forfeiting all benefits.
Reduced Paid-Up Insurance
Reduced paid-up insurance is a nonforfeiture option that uses a policy's cash value to purchase a smaller permanent life insurance policy that is fully paid up, with no further premiums required but a reduced death benefit.
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