Tipping Point: What is a paid-up insurance policy?

A paid-up policy is one that requires no further premium payments and continues to provide benefits till maturity. The paid-up option helps insured keep their policies in force with reduced benefits and thus they don't lose much. Once an insurance plan acquires a surrender value, it can be converted to a paid-up policy. In traditional plans, an insured can convert to the paid-up option after two-three years and for a unit-linked insurance plan (Ulip), it can be done after mandatory five-year lock-in period. Many convert Ulips as well, if they are underperforming.

How is paid-up value is calculated?

It is calculated as the (number of paid premium multiplied by the sum assured and divided by the total number of premiums. In case of a paid-up Ulip, the policy administration charges, mortality and fund management charges continue to be applicable and negatively impact the fund value.