Fully Paid Up Insurance Policy

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It so happens sometimes that we buy an Insurance policy but do not like it later.

Since life insurance policies are long term committments, and because we already have put in a decent amount, it so happens that we at most expect our money put in to be repaid.

Most policy holders who do not like the policy will consider surrendering it.

But surrending the policy often will mean you get a very small amount in return for what you have paid.

An ideal strategy to overcome this is to covert the policy into a fully paid-up policy.

In most cases, when you do not make further premium payments, it automatically gets converted into a fully paid up policy.

However, to be safe, just read the policy documents once again to ensure that this happens.

When you convert the policy into a fully paid up, the following things happen:

The sum assured will remain the same

However, you will be entitled to receive the paid up value on maturity which will be equal to the paid-up value or PUV.

PUV is the total of the premium you paid minus service tax plus bonuses if any.

Paid Up Value = {(No of premium paid/No of premium payable) x Sum assured} + Vested bonus

This facility is often provided for those policies where atleast 3 years of premiums are paid.

To get confirmation on this, read the policy documents to ensure that your policy provides the facility.

A paid-up policy is one which has acquired a valuable consideration for a reduced value, depending upon the number of years for which premiums have been paid.

If you have paid premiums for three or more years under your policy and stopped paying further premiums, then your policy will convert to reduced paid-up.

That reduced value will be considered at any time in future for claim considerations.

Fully Paid Up for ULIPs

For ULIPs, it will be slightly different.

Firstly, ULIPs carry a lock-in period of 5 years.

During this time, even as the policy acquires a surrender value, it doesn't convert into a paid-up policy.

After the lock-in is over, the surrender value is usually paid to you.

But if you stop paying premiums after 5 years, you have the option to convert it into a paid-up policy with a reduced paid-up sum assured.

What after converting to fully paid up?

Paid-Up Policies can further be surrendered if the policyholder wishes to take the money out.

In that case, a certain surrender charge is deducted, depending on the tenure left for the policy to mature and the remaining amount can be paid out to the policyholder as Surrender Value.

Even loans can be availed on Paid-Up Policies.

If the loan amount is not paid back, then the Paid-Up Policy can be surrendered by the insurer to recover the loan amount.

Related Topics

• Introduction to Insurance
• Term Insurance
• Health Insurance
• Unit Linked Insurance Plans (ULIP)
• Reverse Mortgage Plans
• Insurance for the family
• Tracking Insurance data with Excel
• Life Insurance Corporation

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