Paid-Up Value

Paid-up value is the reduced sum assured that a life insurance policy continues to provide after you stop paying premiums, without surrendering the policy. Instead of letting the policy lapse when you cannot afford premiums, you convert it to a paid-up policy. The insurance cover continues at a lower level for the rest of the policy term, but you make no further premium payments.

What Is Paid-Up Value?

When you stop paying premiums on a savings-linked life insurance policy (like an endowment or money back plan) after a minimum period (usually 2 to 3 years), the policy does not automatically lapse. Instead, it becomes a paid-up policy with a reduced sum assured called the paid-up value.

The paid-up sum assured is proportional to the number of premiums paid versus the total number of premiums due under the policy.

Paid-Up Value Formula

Paid-up value = (Number of premiums paid / Total number of premiums) x Original sum assured

**Example:**
Sum assured: Rs 10 lakh
Policy tenure: 20 years (annual premiums)
Premiums paid: 8 years
Paid-up value = (8/20) x Rs 10 lakh = Rs 4 lakh

The policy now provides Rs 4 lakh as a death benefit or maturity benefit without any further premium obligations.

When Can a Policy Become Paid-Up?

A policy acquires paid-up status only after a minimum number of premiums have been paid, typically 2 to 3 years. If you stop premiums in the first year, the policy lapses with no value.

Paid-Up vs Surrender

| Feature | Paid-Up | Surrender |
|———|———|———–|
| Policy status | Continues at reduced cover | Terminated |
| Coverage | Reduced but active | None |
| Cash received | No (until maturity or death) | Yes (immediately) |
| Better for | Those who need future coverage | Those who need immediate cash |

Bonuses on Paid-Up Policy

Once a policy becomes paid-up, further reversionary bonuses stop accruing. However, bonuses already declared up to the date the policy became paid-up are attached to the paid-up value and paid at maturity or death.

Practical Example

Sita took a 20-year endowment plan in 2010 with a sum assured of Rs 8 lakh and annual premium of Rs 45,000. In 2020, after paying for 10 years, she faces a financial crunch and cannot continue premiums. Instead of surrendering, she converts to a paid-up policy. Her paid-up sum assured becomes Rs 4 lakh (10/20 x Rs 8 lakh). The policy remains active, and she receives Rs 4 lakh plus accrued bonuses at maturity in 2030.

Key Takeaways

– Paid-up value is the reduced sum assured you get when you stop premium payments after the minimum period
– The policy continues to provide coverage at the reduced level without any further payments
– Paid-up value is proportional to the premiums already paid versus total premiums due
– No new bonuses accrue after the policy becomes paid-up, but previously declared bonuses are retained
– Converting to paid-up is better than surrendering when you still need the coverage but cannot afford premiums