Paid-up life insurance is a state where your coverage is fully funded, and you do not need to make additional premium payments to maintain the policy. This feature is only available on whole life policies. There are several ways to fully fund your policy, including paid-up additions, reduced paid-up insurance, and cashing out.
Paid-up additions are increases in coverage that you can purchase using dividends generated by a whole life policy. Since this coverage is already paid in full, there is no increase in your premium payments. The cash value of a whole life policy grows at a guaranteed rate, and you can use nonguaranteed dividends to purchase paid-up additions.
Reduced Paid-Up Insurance
If you no longer need the same amount of coverage, or you are concerned about keeping up with your premium payments, you can use your available cash value to purchase a reduced whole life policy that offers less protection but is paid up in full.
While it is generally not a sound financial strategy, it is possible to cash out any policy that earns cash value. However, you may incur surrender charges and will only receive the net cash surrender value that is currently available on the policy, which is likely to be significantly lower than the original death benefit of the policy.
|Paid-Up Additions||Increases in coverage using dividends|
|Reduced Paid-Up Insurance||Using cash value to purchase a reduced policy|
|Cashing Out||Possible, but may incur surrender charges|
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