I stopped paying the premiums for my LIC endowment policy after 5 years. I know it didn’t lapse completely. Does it become ‘paid-up’ automatically, and will it continue to earn the annual bonus from LIC?
Yes, your LIC policy will automatically convert to a “paid-up” policy if you stop paying premiums after having paid for a few years (usually 2-3). However, once the policy becomes paid-up, it stops earning any future annual bonuses.
The Automatic Conversion to a ‘Paid-Up’ Policy
My friend was in this exact situation. He had paid all his premiums for five years on an endowment policy but then faced a financial crunch and stopped paying. He was worried that his policy and all the money he paid were gone. I was able to explain that because he had paid premiums for more than the minimum required period, his policy had automatically converted into a paid-up policy and was still active, but with reduced benefits.
How a Paid-Up Policy Stops Earning Future Bonuses
My friend’s next question was whether the policy would continue to grow with the annual bonus declarations from LIC. I had to clarify that this is not the case. An LIC agent had given me a good analogy: “A paid-up policy is like a plant you’ve stopped watering. It doesn’t die immediately, but it also stops growing.” Once a policy is paid-up, it stops participating in LIC’s profits, and therefore, will not be allocated any new reversionary bonuses that are declared in the following years.
What Happens to the Bonuses You Already Earned
My friend was then concerned that he had lost the bonuses from the first five years. I was able to give him some good news on that front. All the reversionary bonuses that had already been allocated to his policy during the first five years when it was ‘in-force’ are completely safe. These accrued bonuses remain attached to his policy and will be paid out to him at the end of the original policy term, along with the reduced maturity amount (the paid-up value).
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