Paid life insurance is a term that confuses many people. The idea seems to be straight forward, but what makes a life insurance policy paid? How does paid life insurance differ from other types of life insurance? We hope to help you understand all of this today
Paid life insurance is the whole life insurance
Of course, redemption insurance is not a type of life insurance but rather a condition for whole life insurance. All of the entire life insurance policy has a paid deposit that works in one of two ways.
First, the policy is paid when the policyholder meets the premium payments required for the payment status.
Alternatively, the policy is paid when the policyholder chooses to trigger the reduced payment function in his / her entire life policy.
Regardless of the method, it is once guaranteed that the insurance will remain in force for the rest of the life of the insured. More importantly, the death benefit for politics is valid for the whole life of the insured.
I want to take some time to explain the two paid terms in a little more detail.
Satisfactory Pay-Up Requirements
All of the entire life insurance policy is provided with a schedule of mandatory premiums. The insurance period for this premium program is the "premium payment period" (how creative), and it is often a key element of a whole life contract.
If you look at different products for the whole life that can be sold, you may notice that they are referring to a "paid-in" age or a certain number of years before they are paid. For example, you can find a whole life paid at the age of 1
Not all of the life policy puts the premium payment period in the policy name. Some companies choose to give their products more advanced names and make you a little deeper to discover how many premium payments you need to make to make the payment.
Regardless of the name, the premium payment period clearly identifies the number of premiums that the policy owner must make to satisfy the payment function of the policy. When this happens, the policy does not require any future premiums and will remain in effect collecting cash value and earning dividends (if they participate in dividends) except that they provide a death benefit.
Paid life insurance Premium Payment period Example
Kim owns a whole life policy paid in at the age of 65. Kim buys the entire life policy at age 40. This means that Kim must pay premiums for 25 years. After Kim paid the premium on the life insurance policy for 25 years, the policy is paid. Kim stops paying premiums but has to keep his policy in force. The death benefit still exists, and the cash value continues to accumulate.
Release of Reduced Payment Options
If the policyholder wants to terminate premium payments before reaching the end of the premium payment period on a whole life policy, he / she may choose to make the payment policy a lower death benefit. The industry calls this a reduced payment option.
The life insurer will evaluate the current cash value of the policy and calculate the death benefit amount supported by the current cash value. This newly calculated death allowance will be less than the current death benefit on the policy and will become the effective death benefit after choosing the reduced payment option.
The policy owner no longer pays premiums on the policy. It is paid -but must also understand that part of the death benefit he / she had previously been gone. For some people, this is more than a reasonable balance. However, others may need to reconsider this option. Death benefit needs are high.
Paid Life Insurance Reducing Payment Examples
Kim pays 20 payments to the entire life policy paid at age 65 and decides not to pay the additional five payments required to achieve the payment status under the policy agreement. Instead, she chooses to trigger the reduced payment option and make the policy paid rather than originally planned. Kim loses some of the original death benefit in the process.
Although there is a reduction in the death benefit when using the reduced payment option, the accumulation of dividends may potentially create a death benefit greater than the original death benefit, even after triggering a reduced payment option. This happens when the policy owner chooses the dividend option to buy paid supplements.
Paid life insurance and dividends
A common problem that was expressed about paid life insurance focuses on continued distribution of dividends. Some people worry that they will lose their dividends if they have a paid policy. This is not the case. Paid policies continue to earn dividends if they are participating policies that received dividends before the deposit status.
However, the payout amount may vary. Some life insurance companies have different dividend scales that apply to older paid-up entire life rules. This is not necessarily a common practice and it is generally not worth worrying about making a whole life policy paid.
Life insurance without life-long life?
I mentioned earlier that paid life insurance was actually a function of the whole life insurance, which suggesting that only whole life insurance can pay life insurance. This is technically correct, but not 100% true.
This applies to all term life insurance policies. You cannot have paid life insurance because the term life insurance exists only for a time (ie a term). No matter what premiums you pay for a term life policy, the life insurer will never guarantee that the death benefit will remain in effect during your lifetime.
Nor can you make most types of universal life insurance paid. Although it is possible to manipulate a universal life insurance policy in such a way that it is effectively paid, there is no guarantee that it will always continue . And this guarantee, remember, is an important component of the technical definition of payment.
However, some universal life insurance has a paid-in function, it is not just called paid. Some universal life insurance policies have a function called a secondary guarantee (these policies are often named Guaranteed Universal Life Insurance ).
This feature provides a guaranteed death benefit in effect for the insured's entire life provided he or she fulfills a specific contractual obligation. This obligation often looks like a premium payment period that is similar to the whole life insurance, but functionally it is a sum of money paid to the policy to meet the guarantee's requirements. I know that the layman seems like a silly game of semantics, but I assure you that there are technical elements here that are critically different and important.
So while we technically do not really refer to these types of universal life insurance as paid life insurance, they are in fact the same, as they also guarantee that a death benefit will remain in effect for the life of the insured.