What Does Reduced Paid-Up in LIC Mean?

A reduced paid-up in LIC can be an excellent way to keep your policy alive if you fail to pay the premiums. The truth is, life is uncertain and you may face an emergency that can compel you to forfeit paying your premiums. If you don't know what a reduced paid-up is in a LIC policy or how to calculate it, this article is for you. Make sure you read it till the end to ensure you do not end up losing your valuable money.

Read more
Best Investment Options
  • Save upto ₹46,800 in tax under Sec 80C

  • Inbuilt Life Cover

  • Tax Free Returns Unlike FD

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Get Guaranteed returns along with life cover
invest in 100% Guaranteed Return Plans Tax benefits under sec 80C & No Tax on returns*
View Plans
Please wait. We Are Processing..
Plans available only for people of Indian origin By clicking on "View Plans", you agree to our Privacy Policy and Terms of Use #For a 55 year on investment of 20Lacs #Discount offered by insurance company Tax benefit is subject to changes in tax laws
Get Updates on WhatsApp

Meaning of Reduced Paid-Up in LIC

When the policyholder cannot further pay premiums for the life insurance policy for any reason, the sum assured for the policy is reduced by the insurer (LIC in this case). After 3 years of premium payments, a policy has a guaranteed surrender value. It can be paid up if the future premiums are not paid by the policyholder.

In simple words:

A policyholder who has paid premiums for at least 3 years may tell LIC, "I can't pay the policy premiums anymore, so are the premiums I have paid so far and the current cash value of my policy any good?"

LIC in return reduces the coverage amount in proportion to the premiums the policyholder has paid. This means there are no more premiums due. 

  1. Merits

    • Dividends are still credited to your cash value.
    • You can still use your cash component to take a loan.
  2. Demerit

    • Once switched to paid up, a policyholder cannot increase the coverage or start paying premiums again.
  3. Things to note:

    • The death cover is reduced in proportion to the time when the policy got activated and the performance history of the policy. 
    • A longer premium policy paid-up translates to less deduction in death benefit. A recent paid-up process leads to more deduction in death cover. 

    However, one may think to surrender a policy rather than opting for reduced paid-up. Here we are discussing a comparative study between these two and which one should a LIC policyholder opt for.

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

Both the options are beneficial in specific situations. Let us look at them one by one. 

  1. When policy surrender is beneficial

    Surrendering the policy is profitable in terms of the time value of money. If the surrender value is invested elsewhere, it may earn compounded interest and can exceed the paid-up value payable at maturity.

  2. When a paid-up option is beneficial

    Paid-up is more advantageous because your life coverage continues even after you stop paying premiums. If the age increases, the premium amount for a new policy will be greater than your previous one. If you want to continue coverage, it may be a good idea to keep your existing policy in force.

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.

  1. 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.

  2. The coverage needs have changed

    It may be possible that a person has 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 to Convert a 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.
Written By: PolicyBazaar - Updated: 03 September 2021
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
Sign up for newsletter
Sign up our newsletter and get email about LIC India.

Investment plans articles

Recent Articles
Popular Articles
Importance of Investment Plan to Build a Secured Future

18 Oct 2021

In today’s times, people are always on a regular lookout for...
Smart Investing: Time To Rebalance Your Investment Portfolio

18 Oct 2021

Investment portfolio rebalancing means reconstructing your...
Where To Invest Your Money For High-Interest Returns?

18 Oct 2021

Every investor in India invests with a notion of availing...
How To Invest Money And Get Rich

18 Oct 2021

Investing is an important part of wealth creation that helps...
Best Investment Plans for Monthly Returns

18 Oct 2021

Every breadwinner of a family wants to secure his/her family's...
Best LIC Policies For Investment in 2021
When it comes to purchasing a life insurance plan, 'LIC policies' are the most popular choice for customers. LIC...
What is Investment and What is Its Purpose?
Different people possess different notions and understanding of “investment”. To start with, first of all...
Post Office Monthly Income Scheme (POMIS)
Are you looking for an investment avenue which is safe and secure, earns substantial returns with a short locking...
SBI Life Insurance Plans in India
SBI Life Insurance, a joint venture between State Bank of India (SBI) and BNP Paribas Assurance, provides...
Short Term Investments Options
Short-term investments can be described as temporary investments or marketable securities, which can be easily...
Download the Policybazaar app
to manage all your insurance needs.