What Is Reduced Paid-Up Insurance?

There are many types of insurance policies businesses and individuals consider, including liability insurance. While liability insurance is one of the most well-known insurances for business owners to get and can help protect against financial loss, small business owners should also be considering life insurance. One of the types of life insurance policies available is reduced paid-up insurance. Learn more about reduced paid-up insurance coverage in this article, then use the tools on this website to get the best prices for this type of insurance plan available.

There are multiple types of life insurance policies, which pay a benefit to the beneficiaries that are named in the plans when they are purchased. People can change the beneficiary of their policy at any point in time, but the person who will perceive the payout on the policy will be the one listed on the policy at the time of death. There are three different types of life insurance plans, including term insurance, whole life insurance, and universal life insurance. Term life insurance is a policy that lasts for a set period, such as 10 or 20 years. Whole life insurance is designed to last through a person’s entire lifetime. This type of insurance policy accumulates cash value, and the premiums are often higher than for term policies. The third type of life insurance coverage is universal life insurance. This type of insurance policy is a combination of both term insurance and whole life insurance. Not only are the premiums for these policies flexible, but they can accumulate cash value over time.

What Is Reduced Paid-Up Insurance?

Reduced paid-up insurance allows people to stop paying life insurance premiums. When people get reduced paid-up insurance and use this feature, they will also get a reduced amount of life insurance overall. The reduced amount of insurance on the policy is based on the cash value at the time the policy is stopped. Since there is also cash values attached to the policy, there are options for that as well. These include cash surrender, extended term insurance, and reduced paid-up insurance.

Cash surrender is when a person gives up the policy and receives the cash value on it. An extended term insurance option allows people to convert the policy to term insurance and keep the full face value on the policy.

The last option is reduced paid-up insurance. For this option, you receive a policy with a lower face amount that is around for the rest of your life. This means you get less than the full face amount of the policy, but you still do get value out of the policy. With all three of these options, premiums no longer need to be paid.

Why Take Reduced Paid-Up Insurance?

Being able to free your income up for other purposes can be a significant help in many situations. A reduced paid-up insurance plan allows you to maintain your life insurance policy while also not paying premiums. You may get a decreased policy amount, but you get more flexibility with your disposable income and still receive a death benefit. Keep in mind that not all paid-up insurance results in reduced death benefits. Paid-up insurance can be utilized to increase the amount of your coverage as well, which will be talked about further on in this article.

Who Is Reduced Paid-Up Insurance Best For?

For people who no longer need the same amount of insurance than the policy they originally purchased has, a reduced paid-up plan may be a good choice. People who have built up savings fall into this category. Buying life insurance can be a stressful process, but by using the tools on this website, you have the information you need to make these important decisions. Many people are relieved to know that reduced paid-up insurance is an option. It leaves you with coverage in place, but no obligation to continue paying premiums on the plan. Get access to insurance for a reduced amount, with the relative amounts of cash value also given.

It is recommended to have enough life insurance coverage to meet the financial needs of your loved ones if you pass away. The first step is to evaluate your financial situation. This should also be done after major life events, such as getting married, purchasing a house, having a child, becoming pregnant, or taking on larger amounts of debt. Always make sure to purchase a policy that you can afford the premiums to. If you miss payments, your life insurance policy could be canceled.

Difference Between Paid-Up Additions And Reduced Paid-Up

People sometimes purchase extra life insurance, using dividend payments from their policy, and the term for this is a paid-up addition. When people utilize paid-up additions, they directly increase the death benefit on their current policy. Paid-up additions and reduced paid-up insurance have other differences as well. One of these differences is that whole life insurance policies most often include reduced paid-up options. Different than this, paid-up additions are supplemental to your original policy. Some insurance companies require people to add a paid-up rider, or add on, to the policy to get this benefit. This could mean that your premiums could go up when you first purchase your life insurance coverage.