What is Reduced Paid-up in Term Insurance? Check Its Features & Benefits

Term insurance is an efficient and affordable way to protect a family’s financial future against the sudden mishaps of life. However, if, for any reason, Life Assured is unable to pay the term policy premium to keep it active, they can opt for a reduced paid-up option. Let’s learn about it in detail.

What is Reduced Paid-up in LIC Term Insurance?    

The reduced paid-up insurance feature under term insurance implies that Life Assured continues to enjoy plan coverage and benefits even after stopping the premium payment. So, this feature allows the insured to stop making the premium payment but to continue the life coverage under their policy. In this case, the death benefit in the form of the sum assured offered to the nominee of the insured is reduced (if the insured dies during the policy term) as per the cash value collected at that point. This unique facility is available under plans such as whole life insurance and return of premium policy. Further, its availability varies depending on varied plans and needs to be checked before buying.

How Does the Feature of Reduced Paid-up Work?

The feature of the Reduced LIC Paid-up policy works only when your LIC policy has attained the surrender value. If a policyholder misses the payment of the premium of their policy that has already acquired a surrender value, the policy will automatically change to a reduced paid-up plan. In such a case, the new sum assured that is paid to the nominee of the plan in the event of the death of the insured would be reduced according to the criteria of the Reduced Paid-up (RPU) Rider.

How to Calculate the Reduced Paid-up Value?

To calculate the reduced paid-up sum assured that is paid to the beneficiary of the plan in the event of death of the life assured during the policy tenure, we can use the below-mentioned formula:

RPU Sum Assured = (Premiums already paid/Premiums to be paid) * sum insured 

Benefits of Reduced Paid-up Option

Here are some benefits of the Reduced paid-up policy:

• It allows policyholders to stop paying premiums of a term plan if the person is going through a financial crisis but wants to stay covered under the plan
• The amount that is saved by not paying the premium can be used to cover other expenses like buying household goods
• With a reduced paid-up policy, you can have peace of mind for securing your dear ones financially in your absence. Moreover, even if you can’t pay all the premiums for any reason, your nominee can still have a reduced sum insured after your death
• This plan will help people who are willing to save more on their retirement plans
• This plan can also help people who want to avoid surrender fees and other charges that insurance providers levy if you miss a policy premium

Why Should one Opt for the Reduced Paid-up Option?

Below are the reasons why people should opt for a reduced paid-up policy rider:

• If a person is going through tough times in terms of money, they should opt for reduced paid-up riders to avoid losing the benefits of a term plan. In such a situation, they can convert their plan to an RPU or reduced paid-up policy
• With the changes in the stages of life, you might experience corresponding changes in your financial planning. For instance, if you have purchased a new plan to suit your needs and think you do not require the old policy. In such case, you can convert the plan to RPU and stay covered under the policy

 Is it Better to Surrender a Policy or Opt for a Reduced paid-up option?

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Conclude 

When it comes to preference, a reduced payment is preferred over surrendering a policy. Those of you looking to secure the lives of your loved ones but are struggling with a financial crisis can use RPU to cope with the situation.

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