Reduced paid-up insurance is a nonforfeiture option in many whole life policies that allows a policyowner who stops paying premiums to keep a smaller amount of permanent, fully paid-up coverage using the policy's existing cash value. When elected, the insurer uses the cash value as a single premium to purchase a new, lower face amount of paid-up whole life, generally with no further premiums due. The new policy maintains its own cash value and dividend rights (if participating), but the death benefit is reduced compared with the original contract. Reduced paid-up insurance can be an attractive option for policyowners who want to preserve some guaranteed coverage and avoid surrender but can no longer afford full premiums.

In client reviews, advisors may illustrate reduced paid-up insurance as one of several options for underfunded or no-longer-needed policies, alongside surrender, policy loans, or extended term. Carrier in-force ledgers show the projected reduced paid-up amount at current cash value levels. When clients are concerned about ongoing premium obligations in retirement, converting to reduced paid-up insurance can relieve cash flow pressure while keeping a modest legacy benefit. Advisors also consider the impact on beneficiaries, tax consequences of alternative strategies, and the possibility of 1035 exchanges before electing the option. Clear explanation helps clients see that reduced paid-up insurance trades premium flexibility for a smaller but permanent death benefit.