What Is The Paid-Up Value In A Life Insurance Policy?

A life insurance policy provides financial protection to your family in case of your untimely demise. However, it is essential to pay all premiums regularly to keep your policy active. In case you fail to pay your premiums, your policy might lapse, and you may lose your coverage.

To avoid this situation, insurers offer a grace period of 15-30 days after the due date, during which you can pay your overdue premium. If you fail to pay even after the grace period, your policy will cease to exist.

When Does A Life Insurance Policy Acquire Paid-Up Value?

If you have an endowment or money-back plan, your policy will acquire paid-up value if you fail to pay premiums and your policy has completed at least three years. For ULIPs, the same period is five years.

The paid-up value of your policy is calculated based on the following formula:

Policy Paid-up Value	=	(Number of premiums paid / Total number of premiums payable) x Sum Assured

For example, suppose you have a life insurance policy with a sum assured of Rs. 10 lakhs and a premium payment term of 20 years. You have paid premiums regularly for the first eight years, after which you failed to pay. In this case, your policy will acquire paid-up value after the completion of three years. The paid-up value of your policy will be:

Policy Paid-up Value	=	(8 / 20) x 10,00,000	=	4,00,000

In conclusion, it is crucial to pay your premiums regularly to keep your life insurance policy active. If you fail to pay, your policy may lapse, and you may lose your coverage. However, if your policy has completed the required period and you have paid a sufficient number of premiums, it will acquire paid-up value, which can still provide some coverage to your family.