What is paid-up value in insurance?
Death Benefit equals paid-up value in case premium payment is discontinued after 3 policy years
If the policyholder pays premium for only first three years then no further bonus is provided and the paid-up value shall remain the same throughout the policy term. So, in a case when the policyholder wishes to hold on the policy till its maturity term, he/she shall be entitled to only the paid-up value. Also, in case a death claim is made, nominee shall be paid only the paid-up value.
Other benefits or riders associated with the policy cease
Paid-up policy with sum-assured restricted to the paid-up value ceases to provide all the associated benefits such as critical illness rider etc. opted with the policy plan.
Illustration to explain paid-up value: In case you have purchased a policy with a cover of Rs. 5 lakh with a maturity term of say 10 years and you pay premium towards it for just 5 years of Rs. 10,000 on an annual basis. On assuming that a total bonus of Rs. 20,000 was credited for the term for which the premiums were paid. Then, the paid-up value for the policy shall be computed using the following formula:
Paid-up value = [(Number of premiums paid / Total premiums payable * Sum assured) + bonus credited till the policy is paid)]
So, in this case paid-up value comes in at Rs. 2,70,000 {(5/10*5,00,000) + 20,000}.
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