Definition
Paid-Up Policy
A paid-up policy is a life insurance policy you stop paying premiums on, which continues with a reduced sum assured instead of being surrendered.
Making a policy paid-up means you stop paying further premiums but do not surrender it; the policy continues with a reduced sum assured proportionate to the premiums already paid. This is possible once a minimum number of premiums have been paid.
It is often a better option than full surrender, because you retain some life cover and the reduced sum assured (plus accrued bonuses) is still payable on death or maturity, avoiding the steep loss of an early surrender.
Going paid-up suits situations where you can no longer afford or no longer want a savings-linked policy but do not want to forfeit its accumulated value entirely. Compare the paid-up value against the surrender value before deciding.
Related terms
- Money-Back PlanA money-back plan is a life insurance policy that returns a portion of the sum assured at regular intervals during the policy term.
- Surrender ValueSurrender value is the amount a life insurer pays you if you terminate a savings-linked policy before maturity.
- Endowment PlanAn endowment plan is a life insurance policy that combines a death benefit with a lump-sum savings payout at maturity if the policyholder survives the term.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.