Explained: What is paid-up insurance policy?

Life insurance is a long-term contract. It requires you to pay a regular premium that sometimes feel like an underlying burden.

But what if you didn't have to pay the premiums and still continue with your policy? This is known as paid-up insurance policy.

A paid-up policy doesn't demand further premiums. However, it will still provide benefits at the time of maturity. How? Let's find out

Once the policy acquires surrender value, it can be converted to paid-up state. Paid-up value is normally calculated as the number of paid premiums x sum assured/total number of premiums.

Some policies invest a part of your premium money in other products to generate returns. But when you stop paying the due premiums, they eventually acquire a residual value after few years. This is surrender value.

To bring a policy under the paid-up state, you have to pay at least two full year's premium for limited plans and three years for regular plans.

In case of of ULIPs, the policyholder must pay premium for at least five years to make the policy eligible for 'paid-up'.

Meanwhile, for paid-up ULIPs, the insurer will continue to charge for mortality and other fund management services. This can, however, impact the fund value negatively.

Convert your policy to 'paid-up' state only as a last resort. But you must keep in mind that the sum assured amount reduces as a side-effect here.