Co-Founder, Coastal Financial Partners Group, California
Reduced Paid Up policies result from exercising one of the standard nonforfeiture options in cash value policies. When a policy owner wants to stop paying required premiums, it is one of the alternatives to surrendering the coverage for its cash value. In this case, the death benefit is reduced from the amount of the original policy to a level that can be purchased by the available cash value. The paid-up policy is the same type of insurance as the basic policy from which the cash value is being used. Cash values will grow in the paid-up policy.
A paid up life insurance policy is a permanent policy for which no further premiums are owed, but the life insurance will still stay in effect. A reduced paid up policy is the same thing, but for a reduced face amount.
This option is sometimes used when people no longer want to pay the premiums noted in the life insurance contract, but do not want to surrender the policy and lose all their coverage.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The key issue with reduced paid-up life insurance is that there would be no further premiums required. The cash value would increase and the death benefit would remain level. The reason that the company has the ability to provide this benefit is because the cash value is already high enough in the policy to sustain this reduced amount until death occurs, regardless of when that might occur.
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This option is sometimes used when people no longer want to pay the premiums noted in the life insurance contract, but do not want to surrender the policy and lose all their coverage.