If the policyholder at some time cannot afford to continue paying the premiums he has various options.

  • He could stop paying premiums and convert the policy to what is known as a 'paid-up' policy. Simply this means that a reduces sum assured would be paid in the event of a claim. The reduced amount being calculated by multiplying the original sum assured by the number of premiums actually paid and dividing by the total number of premiums that would have been paid over the term of the contract.

    For example, in the case of a 10-year policy with a sum assured of ₤1,000 and five years premiums paid, the paid up policy sum assured would be

    5 10 ₤1,000 = ₤500

    Appropriate calculations take account of bonus additions on 'with profits' policies and on 'whole life' contracts which do not have fixed term.


  • He could stop paying premiums and cancel the policy by accepting its current value in cash-the 'surrender value'. The surrender value is a part of the reserve built up under the policy. It is very low in the early years of a policy but increases steadily as the policy nears maturity.

    He could have a loan from the insurance company using the policy as security and assigning it to the insurance company. The amount of loan available is a proportion (usually 90 per cent) of the current surrender value of the policy. Interest will be payable on the loan, and the amount of the loan deducted by the insurance will deducted by the insurance company before the policy proceeds are paid.