What Happens on a Reduced Paid-Up

So there’s a question on reduced paid up. So a lot of times when we design policy, there is a certain desired funding period be it 5, 7, 10, or 15 years. To cut that funding period to the desired amount we do, what we call a reduced paid up. So that basically eliminates all future premium payments. It takes the existing cash value of the policy and it buys a single premium pay policy at that point. Now this is for policies are set older than seven years and it has to be beyond that the max limit or that seven paid look back. So it can be done at start of eight years or longer. It truly does eliminate all future premium payments. That’s good in the sense that it eliminates the expenses, but it does limit you in the sense of what you can now contribute to the policy.

It’s an option that you can choose to exercise. Again, you don’t have to exercise it, but if you don’t exercise it, then the policy premiums would be, do you know, until you exercise that reduce paid up most insurance products. But the typical ones we use are either 15 pay and pay until you’re age 95. Those are long funding periods, and premiums would be due unless you do a reduced paid-up. And just be aware that at least for the companies we work with doing the reduced paid up and beyond that the PUA limit, as mentioned earlier, that 10 times or that 9 to 10 really it goes away and at times put up only one times your base premium. So if your base trim is 10,000, you can just put another 10,000 in PUA beyond that at that point. So there’s some limitations. There are different companies in different products where if the desire is to have a long funding and that option and flexibility to fund the longer we would be using different products and not do a reduced paid-up.

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