Insurance Uncovered: Will a paid-up policy pay only on the death of policyholder?

Ramesh Yadav

Life insurance policies that are a combo insurance and investment product, offer the option of paying premium for a few years initially and then stopping without much penalty.

The benefit of paying the premium till the policy reaches the ‘paid up’ status is that, it will then be active and continue to give life insurance cover to the policyholder till the end of the policy term.

In traditional life insurance policies, one needs to pay premium for at least two/three years to have the plan converted into a ‘paid up’ policy. In ULIPs, as there is a lock-in period of five years, one will have to pay premium for a minimum five years.

Now, with respect to your specific doubt, on the policyholder surviving the policy term, just like your normal insurance plan, a ‘paid-up’ policy too will pay the SA.

However, note that the sum assured will be proportionately reduced when the policy becomes ‘paid-up’. It will be the original SA multiplied by the number of premiums paid, divided by the total number of premiums that were due on the policy. Also, when a policy becomes paid-up, it doesn’t stand to benefit from the bonuses or guaranteed additions of the future from the insurer.

If you have been mis-sold an insurance policy and looking to exit, it is advisable to stay put for at least the first two/three years and get the product converted as a ‘paid-up’ policy. This way, you can ensure that there is at least some value for the premiums paid. Details about the minimum number of years of premium payment for the policy to be converted as ‘paid-up’ will be there in the product brochure that will be shared with you by the insurance company.

If, however, you have made up your mind to exit the policy, request for surrender. The insurer will then pay you a portion of the paid-up value immediately, and the policy will be terminated.

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