Vanishing Premiums Explained

/ March 23, 2016

Many insured’s are confused and angered when the premiums of their “vanishing premium” life insurance policy, either don’t vanish or reappear at a later date.  If the policy was promoted and sold on a “vanishing premium” basis they ask, then “why am I still writing checks?”  The answer is very simple though not always properly disclosed or understood, even by the selling agent.  Premiums don’t vanish.  At some point, premiums may possibly, hopefully, be covered by the growth/performance of policy dividends and/or cash value but absent that performance, the premiums are still there, needing to be paid in order to keep a policy in force.

The above isn’t to be confused with a guaranteed, paid up policy which is a contract between the policy owner and the insurance company providing for a guaranteed death benefit to an agreed upon age of the insured and with an agreed upon capital contribution for an agreed upon period of years.  Once this obligation has been met by the premium payer, the death benefit will be sustained with no more premiums due and the peace of mind that this is provided for on a contractual basis.

Though subtly different by description, the actual differences are significant because the concept of a “vanishing premium” does not exist and the concept of a “guaranteed, paid up policy” does.

Be sure to ask these questions of your agent to spare yourself much confusion and overpayment of premium.