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Understanding Fund Value In ULIP: A Complete Guide

Life Insurance Policy is a long-term commitment and might turn out to be tedious at times, especially if you are going through any financial disturbances. When you stop paying the premiums during these difficulties, your policy becomes a Paid-Up Policy.
 

Among the other well-known and widely accepted insurance policies available today is a life insurance policy. To keep your insurance policy active, you must pay its premium amounts as detailed within the policy schedule. However, there might come a time when it is not possible for you, as a policyholder, to pay these premiums. Policy providers came up with a solution for whenever such times strike. 
 

Paid-up insurance is just a version of a life Insurance Policy. A Paid-Up Policy in insurance refers to a situation where the policyholder stops paying further premiums but still maintains some reduced coverage or benefits. When an insured stops paying the life insurance policy premiums, it becomes a paid-up policy. In this blog, we will explore more about this type of policy.

Paid-Up Meaning in Insurance 

 

A paid-up policy in insurance refers to a situation in which the policyholder no longer pays further premiums but retains certain reduced coverage or benefits. When you have a traditional life insurance policy, you usually pay regular premiums for the duration of the coverage. 
 

However, there may be times when you cannot continue making premium payments, which is when a paid-up policy comes into play.
 

In the long run, even when it becomes difficult to pay the premiums, letting your policy lapse is never an option. If your policy enables you to convert your existing plan into a paid-up one, it is advisable to use this feature.

How Does a Paid-Up Policy in Insurance Work?

  • A portion of your premium payments accumulates as cash value over time. This cash value grows on a tax-deferred basis and can be used to pay future premiums.  

  • Stopping the premium payments and accumulating the cash value will allow you to keep the policy in force but with reduced benefits. 

  • When you opt for the paid-up policy, you essentially freeze the policy’s death benefit at a lower amount than the originally decided amount. This new amount is completely decided based on your cash value available at the time of the policy conversion.

  • Some policyholders choose to convert that paid-up value in insurance into additions that are small paid-up policies in themselves. These additions enhance your insurance coverage even without the premium payments.

Advantages of Paid-Up Insurance Policy

  • Coverage: Even if you cannot continue making premium payments, this paid-up plan provides you with lifelong coverage. This means you can be carefree about your beneficiaries' financial security in your absence and rely on the paid-up value in life insurance.

  • No premium payments: When you convert your life insurance policy into a paid-up policy, you have no further obligations to pay the timely premiums. This can be a great financial relief if you are stuck financially. Apart from that, you get to use up your cash accumulation from this policy if you have any financial needs or emergencies.

  • Better policy: By converting to paid-up additions, you can increase your coverage and potentially earn from the insurance company.

Limitations of Paid-Up Insurance Policy

  • Reduced Coverage: You or your beneficiaries will not receive the policy’s original coverage. This is the primary drawback of the paid-up policy. The amount that you have paid in premium payments up until now will be the deciding factor in how much coverage you will receive.

  • Surrender charges: Some insurance providers might charge some amount in order to cover up for the conversion. So you will have to pay some surrender charges or penalties to shift to the paid-up policy insurance.

Is Paid-Up Insurance Policy Good for You?

You must understand your current financial position to make the shift from a normal life insurance policy to a paid-up policy. Therefore, research everything in advance before converting your policy to ensure unpleasant surprises later.
 

  1. If you can no longer make the premium payments, shifting to the paid-up policy option is a natural step. 

  2. Examine your long-term financial objectives to see if lowering your life insurance coverage is in line with them.

  3. It is advisable to consult with a professional or an expert who can assess your specific situation and provide personalised guidance before you convert your policy into a paid-up one.

Conclusion

When unanticipated obstacles make it tough to continue paying premiums in the life insurance policy, paid-up policies in insurance might be a beneficial option. They provide a way to keep some level of coverage while avoiding the stress of recurring payments. Make sure that the decision you make should be in line with your future financial objectives and current situation.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

How to calculate the paid-up value in insurance?

It is easier to calculate the paid-up value if you know a few details like:

a) Sum assured 

b) Premium already paid 

c) Premiums payable 
 

The formula is as follows:

Sum Assured X (Premiums Already Paid / Premiums Payable) = Paid-Up Value

What is the Paid-Up value of a life insurance policy?

A life insurance policy's paid-up value is the reduced value of the policy if you stop paying premiums before the policy's maturity date. It is determined by the premiums you have paid and the terms and conditions of the policy.

How can I convert a policy to a paid-up policy?

If you wish to convert your life insurance policy into a paid-up policy, you will have to contact the insurance provider. Gather all the information and understand the requirements for the process of conversion. The process is typically the same for all the policy companies, apart from a step or two.

Disclaimers

  •  Insurance cover is available under the product.

  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.