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July 15, 2019

Can You Completely Pay off a Whole Life Insurance Policy?

paid off whole life policy

If you’re a whole life insurance policyholder, you might be wondering whether it’s possible to completely pay off a whole life insurance policy.

The simple answer is yes, it’s possible.

However, it’s not guaranteed, so if you’re looking to do this, there’s important information you should know beforehand.

What is a Paid-Up Life Insurance Policy?

A paid-up life insurance policy works in two ways:

  • Premium payments – Once the policy owner reaches the payment amount necessary, the policy will reach paid-up status.1
  • Reduce feature – The policy owner can decide to trigger the reduce feature of their whole life policy, which would make it paid-up.1 >

Whichever method you elect, this type of policy is paid in full, remains in force, and no longer require you to pay any premiums. It offers numerous benefits, too.2

One of the main benefits is that it offers coverage for an individual’s entire life. Additionally, you’re able to build up a tax-deferred cash value, or savings, for the length of the policy.3

Paid-Up Life Insurance Policies Explained

Paid-up life insurance comes in two forms – paid-up status and paid-up additions. Paid-up status will allow you to keep your policy in force without having to continue paying premiums. If you were to pass away, your beneficiary will receive your death benefits.3

On the other hand, paid-up additions are essentially a miniature life insurance policy. Cash value accumulates through the paid amount, meaning if you were to pay 10 dollars, you’d accrue 10 dollars in cash value. Furthermore, they utilize dividends the policy earns to purchase extra coverage, which is added to your cash value. These policies are paid up, which means they don’t require premiums or any other added costs. Similar to paid-up status, paid-up additions offer a death benefit as well. If you were to pass away, your beneficiary will receive your benefits.2

Converting a Life Insurance Policy to Paid-Up Status

It’s possible to keep your policy in place without continuing to pay premiums, but it depends on your specific policy. If you’re considering converting to a paid-up status you should look to the language of your policy as it’s not always an option on every policy. If this is an option for you and you decide to convert to a paid-up status, it would mean you no longer have to make premium payments moving forward. To know whether this is applicable to you, refer to your specific insurance policy.3

So, what does all of this mean?

In simple terms, your policy stays intact by deducting premiums from your cash value account. Also, it means, depending on your policy’s guidelines, you’ll no longer be required to make temporary or permanent payments. Also, your death benefits will likely decrease, so if you were to pass away, your beneficiary will still receive your death benefit. However, they will only receive the amount left over after your premiums have been paid.2

    Resources:
  1. The Insurance Pro Blog, Paid-Up Life Insurance, 2019
  2. Life Ant, What Does It Mean When a Life Insurance Policy is “Paid Up”?, 2019
  3. Trusted Choice, Can a Paid-Up Life Insurance Policy Eliminate Your Monthly Insurance Bill?, 2019

Categories: Insurance, Life Insurance, Whole Life Insurance

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