What Is Reduced Paid-Up Insurance?

Life insurance protects families

Reduced paid-up insurance is a feature of a permanent life insurance policy that can be obtained after premiums reach a certain paid level. The amount of payout, however, is reduced from the original insurance amount.

Policy Option

Most whole life or permanent policies allow policyholders to discontinue paying for the insurance after a long period of actively paying premiums. This creates an accumulated cash value in the policy that will be used to buy a "Paid Up" face value. Your life insurance company will tell you how much life insurance the cash value will buy, and you will never have to pay another premium again. The final payout of this reduced paid-up policy, however, is reduced from the original amount.

Incremental Benefit

Some permanent policies will pay dividends, or income on the policy value separate from the credited interest rate. These policies may allow policyholders to buy small paid-up chunks of insurance with the dividends as they are credited to the policy instead of adding the dividends to the cash value or sending a dividend check. This option will increase the death benefit over the years of the policy and provide a portion of insurance for which premiums are never paid.

Cost-of-Living Benefit

Some policies may offer an option to purchase small amounts of paid-up life insurance every year or so to account for the changes in the cost-of-living needs of survivors. This option typically requires policyholders to accept the addition every year for the offer to continue. The company may set the policy up so the accumulated cash value of the policy pays for the addition of the cost-of-living benefit, or give policyholders the option to pay for the addition in billing.

References

• msnmoney.com:insurance

Resources

• lifehappens.org