Kathmandu. The insured regularly buys a life insurance policy with the hope of bearing the risk along with savings. Anticipating the state of ensuring his source of income and source of income, the insured chooses the amount of the insurance installment.
Sometimes, due to some unexpected events or circumstances beyond control, income sources may be lost, dried up, or income may shrink, which can lead to a lack of income even for daily livelihoods. In such an uncomfortable situation, saving the sum assured can be like ‘chewing an iron rod’ for the insured.
What to do in this situation? Love the amount paid for the insurance installment? Whatever money you get back by surrendering the insurance policy, will you take it back and spend it? Or choose a third option?
The third option is not to pay the remaining installment of the insurance, but to keep the insurance running without closing it. Under this option, the sum assured of the original sum assured of the policy is re-evaluated and deducted and the sum assured is determined by the amount paid by the insured as installment. In this way, after determining the new but lower sum insured than before and converting the policy into a paid-up policy, the insured continues to pay the amount for the remaining period.
What is the sum assured of paid-up insurance?
The sum assured means that even if you stop paying the insurance installment, you continue to bear the risk that remains under your life insurance policy. This option is useful if you are not able to continue the remaining installmentby paying only a short period of time even if you have long-term insurance. When the policy is converted into a paid-up policy, the insured has stopped paying the insurance premium for the remaining time. However, the policy remains active with a lower amount i.e. the sum insured than before. The determination of such a sum assured is based on the terms and conditions of the insurance policy.
How is the paid-up sum insured calculated?
Calculating the paid-up sum assured include several factors:
Principal sum assured: Amount initially promised by the policyer at death or maturity.
Number of insurance fees paid: Total number of insurance fees paid before the conversion of the insurance fee to the paid state.
Insurance term: Length of insurance term and how long insurance is in force.
Type of insurer: The insurer has issued various policies and the method of calculating the sum assured may vary depending on the type of insurer (e.g. term, lifetime or advance payment).
For example, suppose you have an insurance policy with a basic sum assured of Rs 2 million and you have paid the installment of insurance only for 10 years out of the full 20 years of insurance. In such a case, the sum assured is determined on the basis of calculating the paid-up price based on the principal amount.
Why is the rescheduled sum assured important?
Flexibility: The paid-up sum assured provides flexibility if you can no longer continue paying insurance premiums. This allows you to maintain a low level of risk bearing without further financial commitment.
Continued Protection: A paid-up insurance policy still offers protection even when the benefits are minimized and can be beneficial if you need to ensure some insurance cover.
Continuity of the policy: Knowing the sum assured paid will help you understand how your policy will work if you decide to stop paying the insurance premium and ensure that you are not confused by the reduced benefits.
Benefits of paid-up sum assured
No additional insurance installments: Once your policy is converted into a paid-up policy, you are exempt from paying additional insurance fees while maintaining some degree of risk bearing.
Reduced benefits: Although the benefits have been reduced. The paid policy will ensure that you still receive some payment. Whether at maturity or in the event of an insured event.
Surrender value: Paid insurance usually accumulates the surrender value. Which can be beneficial if you decide to end the insurance before maturity.
It is advisable to consult with your agent or insurance company’s branch office for personal guidance and support in order to make an informed decision about your policy and to understand how the insurance amount paid will affect you. This will ensure you take information about your insurance options wisely and secure your financial future.
