Updated on October 4, 2023
The term paid-up value is used in relation to the amount of coverage that is given to the insured party. The meaning of this term and its relation to the sum assured is explained here.
Meaning of paid-up value
Paid-up Value is a term commonly associated with life insurance policies and refers to the reduced sum assured or coverage amount that the insurance company pays to the policyholder if they discontinue paying premiums after having paid the full premiums for the initial three years of the policy.
Understanding Paid-up Value in Detail
Paid-up value in life insurance is crucial because it pertains to policies that necessitate regular premium payments to maintain the full coverage amount. Usually in traditional or endowment life insurance policies, if a policyholder discontinues premium payments after the initial three years, the policy doesn’t lapse immediately but transitions into a “paid-up” status with a reduced sum assured. For instance, if a policyholder had a Rs.10 lakh sum assured policy and ceased premium payments after the third year, the sum assured might be reduced, perhaps to Rs. 4 lakhs. Importantly, no further premiums are required for paid-up policies, and the reduced sum assured remains effective until the policy matures or a claim event occurs, with the insurance company paying out the reduced sum assured to the policyholder or beneficiaries as per the policy terms.