Legal Definitions - paid-up policy

A paid-up policy is an insurance policy, most commonly a life insurance policy, for which all required premiums have been fully paid. This means the policyholder no longer needs to make any further payments, yet the policy remains in effect, providing its benefits (such as a death benefit or cash value growth) for the remainder of its term or for life, depending on the policy type. A policy can become paid-up either by reaching the end of a specified premium payment period or by the policyholder choosing an option to convert an existing policy into a paid-up status, sometimes with a reduced benefit amount.

Here are some examples illustrating a paid-up policy:

• Example 1: Reaching the end of a premium payment schedule

  Sarah purchased a whole life insurance policy when she was 30 years old, with a premium payment schedule set for 30 years. Now that Sarah is 60, she has made all 360 scheduled monthly premium payments. Her policy is now considered paid-up. She no longer owes any premiums, but the policy remains active, providing a death benefit to her beneficiaries and continuing to accumulate cash value over time.

• Example 2: Converting an existing policy using cash value

  David has a universal life insurance policy that has accumulated significant cash value over 25 years. As he approaches retirement, he wants to eliminate future premium payments without surrendering the policy entirely. David contacts his insurance company and exercises a "reduced paid-up" option. He uses a portion of his policy's accumulated cash value to purchase a new, smaller death benefit policy that requires no further premiums. His original policy's larger death benefit is reduced, but he now has a guaranteed, premium-free life insurance policy for the rest of his life, which is a paid-up policy.

• Example 3: A single-premium policy

  Maria inherited a substantial sum of money and wanted to ensure her grandchildren would receive a guaranteed inheritance. She decided to purchase a single-premium whole life insurance policy. Maria made one large, lump-sum premium payment at the time of purchase. From that moment on, her policy was considered paid-up. She never had to make another payment, and the policy immediately began providing a death benefit and accumulating cash value, guaranteeing a future payout to her beneficiaries.