Does a payment plan mean your policy is paid up?
Not necessarily. An illustration may show payments stopping after a certain number of years, while the actual policy still requires premiums. Ask your adviser to explain which payments are guaranteed by the contract and which depend on assumptions.
What does “premium offset” mean for you?
Premium offset means using policy dividends and, where applicable, value from additional insurance within the policy to help pay premiums. It does not necessarily end your payment obligation. If dividends are lower than expected, you may need to start paying out of pocket again.
What does “reduced paid-up” mean?
Some policies let you exchange your existing coverage for a smaller amount of insurance without future base premiums. The amount and conditions depend on your policy and the insurer. Before choosing this, ask what protection would remain, which benefits would end and whether the change could be undone.
How can you compare the options fairly?
Ask to see continuing payments, premium offset and any reduced paid-up option side by side. Have your adviser explain what is guaranteed and what is an estimate. An illustrated future value is not a promised result, and a dividend scale is not the return you earn on the policy.
Are cash value and the death benefit the same money?
They describe different things. Cash value is an amount that may be available during the policy’s life, subject to its terms. The death benefit is the amount payable on death under the contract. Don’t assume the two are added together. Ask how borrowing, withdrawals or a policy change would affect each.
What if a company owns the policy—or it supports a loan?
A change can affect more than the insurance itself. Your adviser can help identify the questions for your accountant and lender. Changing coverage does not automatically repay a bank loan or stop interest. Make sure you understand the continuing obligations and any tax consequences before deciding.
Who can help you understand what would change?
Ask your adviser to obtain the insurer’s current written figures and explain them with you. You should understand future payments, remaining protection, cash values and benefits that would end. If a figure is an estimate, ask what still needs confirmation. You don’t have to interpret the paperwork alone.
QUESTIONS TO HELP YOU DECIDE
What should you ask?
- Are the payments shown guaranteed by my policy or just an example?
- Could I need to start making payments again?
- How much protection would I have afterwards?
- What would I give up by making this change?
- Does a lender or tax adviser need to review the decision?
Further reading
Use this guide to understand the topic and identify what needs checking. Your own circumstances and the applicable documents determine which choices may fit.