Paid-up life insurance and premium offset: what is guaranteed?

If a policy illustration shows payments stopping in a future year, ask what makes that possible. You need to know whether the premium obligation ends under the contract or whether policy values are expected to cover future payments.

That distinction affects how much money you may need to contribute later. It deserves a written answer before choosing a policy.

Find the contractual payment schedule

Ask the advisor to point to the contract provisions governing the base premium and any riders. Some policies offer a specified payment period with contractual guarantees, subject to their terms. Check which parts of the illustrated plan those guarantees cover.

A page of projected values can help explain possibilities. The policy contract establishes the obligations and guarantees. Ask to see both and have any differences explained.

Understand premium offset

Premium offset uses available dividends or policy values to pay some or all of a premium that remains due. Participating policy dividends are not guaranteed.

If the values supporting offset are insufficient, the policyowner may need to resume payments from other money. An illustrated offset date can change. The insurer’s rules and the actual policy determine what is available.

This matters even when two proposals show the same apparent payment period. Ask each advisor to identify the mechanism behind that result.

Separate the guaranteed and illustrated values

Have the proposal show the guaranteed premiums, death benefit and cash values separately from amounts that depend on future performance or dividends. Ask for an illustration using less favourable assumptions where available.

Look at the same policy years across proposals. Then ask what your family would have to do if the lower projection occurred. The conversation should include affordability beyond the appealing first page.

Questions worth getting answered in writing

• Which premiums remain payable under the contract?
• What exactly permits payments from our bank account to stop?
• Which values depend on future dividends or investment performance?
• What happens if those values are lower than illustrated?
• Would withdrawals, loans or other changes affect the plan?

Keep the answers with the illustration and policy. They provide a useful reference when reviewing an annual statement or a later recommendation.

Connect the structure to the reason for coverage

A long-term family or estate need may justify considering permanent insurance. The commitment still has to fit the household’s cash flow and priorities.

If you are comparing this with temporary protection for a mortgage or dependent children, begin with the purpose of term and permanent coverage. Understanding the payment mechanics is one part of deciding whether the overall plan suits you.