LIC Reduced Paid-Up

Reduced Paid-Up in LIC refers to the option where a policyholder who cannot continue premium payments chooses to maintain reduced insurance coverage without making further payments. The sum assured decreases, and the policy continues with decreased benefits, providing a compromise for those facing financial constraints.

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LIC Reduced Paid-up Policy- An Overview

LIC Reduced Paid-Up policy is an excellent solution for policyholders facing financial challenges. This option allows individuals to stop premium payments while retaining a reduced level of coverage. The sum assured decreases based on previous premiums and the premium-paying term. Opting for the Reduced Paid-up option provides a flexible way to continue the LIC policy without worrying about future premium payments.

In Simple words, if the policyholder cannot pay the future premiums of their LIC policy, the company, in return, reduces the coverage amount in proportion to the premiums the policyholder has paid. This means one can enjoy their LIC coverage without paying further premiums.

Advantages of LIC Reduced Paid-Up Policy:

  • Financial Flexibility: The primary advantage is that it provides financial relief for policyholders facing difficulty paying premiums.

  • Partial Coverage Retention: Policyholders can retain a reduced level of insurance coverage without the need for further premium payments.

  • Policy Continuation: The policy continues even after premium payments stop, ensuring some form of insurance protection.

  • No Lapse of Policy: Opting for Reduced Paid-Up prevents the policy from lapsing, maintaining a connection with the insurance provider.

Disadvantages of LIC Reduced Paid-Up Policy:

  • Reduced Benefits: The most significant drawback is the reduction in the sum assured and associated benefits, impacting the overall coverage.

  • Limited Reversibility: Once the policy is in Reduced Paid-Up status, it cannot be reverted to the original sum assured by resuming premium payments.

  • No Further Bonuses: The policy may not accrue additional bonuses or benefits since premiums are discontinued.

  • Impact on Final Payout: The diminished sum assured affects the final payout, potentially impacting the financial protection provided to beneficiaries.

If your insurance policy becomes Reduced Paid-Up, the death cover decreases based on when the policy started and its performance history. The longer you've paid premiums, the less the deduction in the death benefit. Choosing Reduced Paid-Up quickly results in a larger deduction. Some might consider surrendering the policy instead of going Reduced Paid-Up. Let's compare these options and figure out which is better for LIC policyholders.

Policy Surrender or Reduced Paid-Up: Which is Better?

Choosing between policy surrender and reduced paid-up options depends on your financial goals and priorities. Let's discuss each option to help you make an informed decision.

  • Policy Surrender:

    Opting for policy surrender can be financially beneficial when considering the time value of money. You receive a surrender value that can be invested elsewhere by surrendering your policy. This amount can earn compounded interest, exceeding the paid-up value payable at maturity. It's a strategy that allows you to maximize returns on your investment.

  • Reduced Paid-Up Option:

    Choosing the reduced paid-up option is advantageous for those who want to maintain life coverage even after discontinuing premium payments. As you age, the premium amount for a new policy tends to be higher. By opting for a reduced paid-up status, you ensure that your life coverage persists without the need for additional premiums.

Need for Reduced Paid-up in LIC Policy

There can be two main reasons a person may have to opt for a LIC reduced paid-up policy in his/her LIC plan.

  • Change in the Financial Situation
    Life is unpredictable. A person's loved one may meet with an accident, and they run out of cash to pay premiums for the upcoming several months. He/she can also lose an asset (like a stolen car) and need to buy a new one to maintain his/her lifestyle. Such financial changes may force a person to opt for a reduced paid-up LIC policy.

  • The coverage needs have changed.
    A person may have bought a new insurance plan with better benefits. In that case, he/she may not want to continue with the existing premium payment of the LIC policy and opt for a reduced paid-up option.

How do you convert an LIC Policy to a Paid-Up Policy?

Suppose your policy tenure is more than 10 years, and you have paid premiums for more than 3 years. In that case, your policy becomes paid-up automatically if you stop paying the premiums. However, if your policy tenure is less than 10 years and you have fully paid the premiums for more than 2 years, the same paid-up rule will apply. 

When Not to Choose a Reduced Paid-Up?

Reduced paid-up insurance might not be the best option if you are currently dependent on policy riders. Any riders on your old life insurance policy would usually be removed when you convert to this type of policy. This is an important consideration, as your policy riders could provide you with vital benefits that will benefit your life.

For example, you may have taken an income benefit rider that gives your family an additional income yearly for five to ten years with the sum assured. So, if you make it a reduced paid-up sum assured, you will lose this rider and the benefits associated with it.

Wrapping Up

After buying LIC's life insurance policy, you may come across situations where you have to stop paying premiums. In that case, making sure your policy switches to a reduced paid-up sum assured type will allow you to avail of the adjusted coverage and not incur a substantial financial loss.


  • Q. How to revive a reduced paid-up sum assured in LIC?

    Answer: You cannot revive a LIC policy reduced paid-up plan. However, insurers keep coming up with revival offers from time to time. If that is the case, you may still be able to revive the policy back to its original nature.
  • Q. How to calculate the reduced paid-up amount in LIC?

    Answer: You can use this formula to calculate the reduced paid-up value for LIC policy:
    (Initial sum assured) x [(Total premiums paid)/ (Cumulative premiums that need to be paid in the plan)] = Reduced paid-up value
    For example:
    • Policy tenure = 10 years
    • Number of paid premiums = 5
    • Sum assured = 1 lakh rupees
    Reduced paid up amount = (1 lakh rupees) x (5/10 years) = 50,000 rupees.
  • Q. Can I continue a reduced paid-up LIC policy?

    Answer: Yes. Suppose your policy tenure is 12 years, and you stopped paying premiums after 5 years. In that case, your policy will switch to a reduced paid-up sum assured. You will still be eligible for reduced coverage proportional to your paid premiums so far and your policy's cash value.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
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++Returns are 10 years returns of Nifty 100 Index benchmark

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