Kathmandu. The insured buys life insurance policies with the expectation of saving as well as risk on a regular basis. The insured chooses the premium amount by anticipating the state of assurance of his source of income and the source of assurance.
Sometimes, due to some unforeseen event or uncontrollable circumstances, the source of income may be lost, dried up or the income may shrink. As a result, there may be no income for daily living. In such an uncomfortable situation, saving the insurance premium can be like chewing iron flakes for the insured.
What to do in this situation? Killing the amount of insurance premium? Should you spend the amount of money you get back by surrendering the insurance policy? Or choose the third option? The wisest decision would be to convert to a third option, i.e., a paid up insurance policy.
In the paid-up policy, even if the remaining installment of the insurance is not paid, the insurance can be continued without stopping it. Under this option, the sum insured is deducted by re-evaluating the sum insured and the sum insured is determined by the amount paid by the insured. In this way, after determining the new but lower sum assured than the previous one, the policy is converted into a paid up policy, so that the insured does not have to pay the remaining period of the policy.
TAG_OPEN_strong_40 What is the sum insured of a paid up policy?
Sum Assured Paid refers to the situation where you will continue to bear the risk of being covered under your life policy even after you stop paying the premium. This option is useful if you have long-term insurance but are unable to continue the remaining installments by paying only a short period of premiums. When the policy is converted into a paid policy, the insured stops paying the remaining premium. However, the insurance policy remains active with a smaller amount i.e. the actuary. The determination of such insured is based on the premiums paid and the amount of installments paid.
How is the paid up sum insured calculated?TAG_OPEN_strong_39
The amount paid up is calculated on the basis of the principal insured, number of premiums paid, term of insurance, type of policy. At death or maturity, the sum insured initially pledged to be paid, the total number of premiums paid before conversion to the status of premium, the length of the term of the policy, and how long the policy has been in force.
In addition, the insurer has issued different policies and the method of calculating the sum insured may vary depending on the type of policy (such as term, life or advance payment).
For example, suppose you have a policy with a basic sum assured of Rs 20 lakh and you have paid the premium for only 10 years out of the full 20-year insurance term. In such a case, the paid-up sum insured is determined on the basis of the principal amount calculated on the basis of the paid-up value.
Why is the paid sum insured important?TAG_OPEN_strong_38
Flexibility: Paid actuary offers flexibility if you cannot continue with the premium payment. Even if the benefits of insurance are deducted, a paid insurance policy still provides protection and can be beneficial if you need to ensure some form of insurance coverage.
Knowing about paid insurance will help you understand how your insurance policy will work if you decide to stop paying premiums and ensure that you are not confused by the reduced benefits.
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Once your policy is converted into a paid up policy, you are free to pay additional premiums while maintaining some degree of risk. However, in doing so, the benefits under the policy are limited. A paid insurance policy ensures that you still get some payouts. Whether at maturity or in the event of an insured event.
Paid insurance policies often ensure the surrender value. Which can be beneficial if you decide to terminate the insurance before maturity.
It is advisable to consult with your agent or insurance company’s branch office for personalized guidance and support to make an informed decision about your insurance policy and understand how the sum insured paid affects you. This will ensure that you know your insurance options wisely and secure your financial future.
