What Is Paid-Up Life Insurance?

It's important to understand the specifics of any life insurance policy you take out.
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Paid-up life insurance is exactly what the name implies: insurance that will pay out when the insured passes away, but for which premiums no longer need to be paid. There are a few different ways in which a policy can become paid up, the most common of which is reduced paid-up insurance.

Reduced Paid-Up Insurance

Reduced paid-up insurance is an option built into many permanent life insurance policies that allows the insured to keep his policy if he stops making premium payments. A reduced death benefit is calculated based on the amount of premium already paid, but no further payments need to be made to maintain coverage. The policy remains in force until the policyholder's death.

Other Paid-Up Insurance

Less frequently, policies are actually designed to be paid in full at a particular age, allowing the policyholder to keep her life insurance without having to make further payments. People who buy these types of policies pay higher premiums, but have their policy paid in full at the set time.

Several types of term life insurance policies are similar to paid-up insurance in that a limited number of premiums are paid -- often only a single premium payment. These are different from paid-up insurance, however, in that the life insurance is only in force for the duration of the term specified in the policy.