What is the Paid-Up Value of a Life Insurance Policy?

Understanding Paid-Up Amount Of A Life Insurance Policy

What Does a Paid-up Policy Mean?

A life insurance policy becomes ‘paid-up’ when the policyholder decides to stop paying premiums after a certain period. As per recent regulations, if the policyholder stops paying the premium amount after they have paid the life insurance premium for at least a year, the policy turns into a paid-up one. The policy then continues with a reduced sum assured, known as the paid-up value.

With most insurers, a policy can acquire paid-up value only if the policy has been in force for a year, and if it has an investment value. So, endowment policies, money-back plans, or a ULIP (Unit-Linked Insurance Plan) may be eligible given the first condition is also met.

However, if the policyholder buys a life insurance plan but does not pay the premium for the 1^st year and discontinues to pay future premiums, it will be considered a lapsed policy. Such a policy will not offer any coverage.

How to Calculate the Paid-up Value?

This paid-up value is calculated based on the following formula:

Sum assured x (Number of premiums paid / Total number of premiums payable)

So, let’s assume Seher chooses to buy a life insurance plan for whom she has to pay premiums for 15 years. The sum assured of the plan is ₹50 lakhs. However, Seher is able to pay premiums only for the first 5 years.

As per the aforementioned formula, the paid-up amount of the life insurance policy in this case will be:

50,00,000 x (5/15) = 16,66,670

Converting to a paid-up policy is a good option for policyholders unable to continue paying their life insurance premiums. Instead of losing all benefits, the policyholder retains some coverage. This ensures that their loved ones continue to have a safety net.

However, before deciding, it is advisable to consult with your chosen life insurance company in India. In addition, remember to use a life insurance calculator to get premium estimates and make well-informed decisions beforehand.

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Understanding Paid-Up Amount Of A Life Insurance Policy

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