Turn your insurance policies into paid-up plans (If you are thinking of discontinuing an insurance policy or want to stop paying the premiums)

If you are thinking of discontinuing an insurance policy or want to stop paying the premiums for a policy, you are not alone as reason can differ from person to person may be product was mis-sold, or not able to pay the premium amount or you don't want to continue that policy as not given returns what you expected, so here is solution if you don't want to go for surrendering, covert your policy to paid policy, however, your insurance cover will continues (but that gets reduced) till the maturity of the policy, i.e the sum assured is reduced in proportion  to the premium amount paid till date.

The paid-up value of a policy is the reduced sum assured calculated on a proportionate basis by using a simple formula
Paid up value = Original sum assured * (Number of premiums paid / Total number of premiums that were required to be paid)

The basic definition of Paid-Up Insurance for life insurance means that all the premiums have already been paid, with no further premium payment due, a paid-up policy is a whole life insurance policy for which no additional premium payments are required to keep it in force.


The paid-up option is by far the best way to exit an insurance policy because it gives the policyholder the best of both worlds. He is free from the burden of paying the premium that are a drag on his finances, but continues to enjoy the life insurance cover that was the primary objective of the plan.

According to LIC rules and regulations, once you pay the premiums on a life insurance policy for 3 full years, the policy does not become wholly void even if no subsequent premiums are paid.
Such policies are known as paid-up policies. In such cases, the sum originally assured is reduced to a sum bearing the same ratio to the full sum assured as the number of premiums actually paid to total number of premiums originally stipulated as payable under the policy.

If 6 out of the originally stipulated 30 premiums are paid, the sum assured under a paid-up policy would still be 20 percent of the original sum assured by the policy.
 
Disadvantages :


A paid-up policy loses all the additional benefits attached to the policy:

Double Accident benefits & survival benefit installments in the case of money-back policies

A paid-up policy may be free from payment of further premium but is subject to the payment of interest on any loan and other charges, if any are applicable. The interest on the loan must be paid regularly or insurance company will start write off the policy towards the repayment of loan amount and the interest in terms of the conditions governing the grant of the loan.

It is strongly advised that you should NOT allow any of your policies to become paid-up policies, but if you can't avoid rather surrendering convert your policy to paid policy.