What is paid-up life insurance?

Let’s set the record straight on paid-up life insurance.

While many people think “paid-up life insurance” is a type of policy they can purchase, it’s actually a state or condition where your coverage is paid-in-full (fully funded) and you do not need to make any additional premium payments in order to maintain the policy. Since this can be an attractive feature for many policy owners—especially those who are looking to control costs in the future—it’s important to remember that this option is usually available only on whole life policies.

Three ways to fully fund your policy.

There are several ways to fully fund your policy (pay if off faster). Since each operates very differently, let’s take a moment to explore three options:

1. Customize your policy to pay fewer premiums: Some whole life policies, such as our Custom Whole Life insurance, allow you to choose your premium-payment period and accumulate cash value faster than others. As a result, you may be able to fully fund your policy in as little as five to 10 years. Of course, the fewer payments you make the higher each premium will be.
   
2. Convert to reduced paid-up insurance:  If your need for coverage changes in the future, you may be able to use your dividends and any available cash value to purchase a portion of your coverage and thereby reduce your future premium payments.  If you choose this option, it’s important to realize that the death benefit protection you receive will be substantially lower than the original face amount of the policy. A New York Life financial professional can give you all the details.
   
3. Capitalize on paid-up additions: Since many whole life policies are eligible to earn dividends,¹ you can use this resource to purchase additional coverage. Because the cost of this additional coverage is completely funded by the nonguaranteed dividends, it can increase your level of protection without any increase in premiums. What’s more, this additional coverage is also eligible to earn dividends, so your policy’s value grows faster each time dividends are declared.
   

Here’s how paid-up additions work.

As you can see from the example below, a whole life policy features a guaranteed death benefit², which is the face value of the policy at the time it is purchased. Each time dividends are declared, you can use them to purchase more coverage and increase your total death benefit protection.

Should you “pay off” your life insurance early?

There are lots of reasons why you may want to pay off (fully fund) your coverage: an increased or decreased need for coverage, future budgetary concerns, or the desire to build cash value faster are just a few. But as we’ve seen, the way to go about it can have a major impact on your level of protection. That’s why it is so important to consult a New York Life financial professional before making any decision.