What is a paid-up policy in a VUL context?

In the context of a Variable Universal Life (VUL) insurance product, a paid-up policy refers to a policy that remains active without the need for additional regular premium payments because it has accumulated sufficient cash value. This cash value can be used to cover the ongoing costs of insurance and other deductions, allowing the policyholder to maintain their life insurance coverage even if they choose not to make additional contributions.

The key aspect of a paid-up policy is its reliance on the cash value built up within the policy over time. As policyholders make their premium payments, a portion of each payment contributes to the cash value, which can grow through interest or investment performance linked to the variable nature of VUL policies. Once this cash value reaches a level that can cover the costs associated with the policy, it effectively allows the policyholder to stop or reduce premium payments without losing their coverage.

This concept is significant for individuals looking for flexibility in their insurance premiums while ensuring they have ongoing life insurance protection. It differentiates VUL policies from other types of insurance that may require continued premium payments indefinitely to maintain coverage.