Paid-up life insurance is a permanent life insurance policy on which no further premium payments are required. The policy remains in force for the insured's entire lifetime, with the death benefit guaranteed, even though the policyholder has stopped making premium payments. This status can be reached in several ways: through a limited-pay whole life policy that is designed to be fully paid up after a set number of years, through the use of dividends to purchase paid-up additions, or through a nonforfeiture option that converts a lapsing policy to a reduced paid-up policy.
Limited-pay whole life policies (such as 10-pay, 20-pay, or paid-up at 65) are specifically designed to reach paid-up status after the specified payment period. The premiums during the payment period are higher than a traditional whole life policy because the full funding is compressed into fewer years. Once the policy is paid up, the death benefit continues for life, cash value continues to grow, and the policyholder has no further financial obligation.
Paid-up additions (PUAs) are small increments of paid-up whole life insurance purchased with dividends or additional premium payments. Each PUA has its own cash value and death benefit, and since they are already paid up, they require no further premiums. Over time, accumulating PUAs can significantly increase both the death benefit and the cash value of a whole life policy. Dividends used to purchase PUAs are not guaranteed.
The reduced paid-up nonforfeiture option is available if a permanent policy with sufficient cash value is about to lapse. Rather than surrendering the policy for cash, the policyholder can elect to receive a smaller, fully paid-up policy with no further premiums required. The reduced amount depends on the cash value available at the time. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.