Making an endowment life insurance policy paid-up: strategies for optimising premiums and preserving the policy
30.04.25
5
Minutes
Katrin Straub
Managing Director at nextsure
Are you facing the decision of making your endowment life insurance paid-up? This option can provide financial relief, but it also has pitfalls. Find out how to proceed wisely and what alternatives are available.
The topic in brief and concise terms
Making a whole life insurance policy paid-up means no longer paying premiums, while the contract continues with reduced capital and the maturity benefit decreases.
Before opting for premium-free status, alternatives such as premium deferral, contribution reduction or payment from accumulated surplus should be considered.
A contribution exemption must be requested in writing and may lead to tax disadvantages as well as the loss of additional benefits.
Understanding contribution exemption: basics and first steps
If you make your endowment life insurance paid-up, you stop the ongoing premium payments. Your policy continues with the capital accumulated up to that point, which results in a reduced sum assured at maturity. As a rule, this is possible once a minimum sum assured has been reached, often after two to three years' term. Please note that administration costs will still continue to apply and may reduce the balance. Paid-up status must be notified to the insurer in writing.
The decision to make the policy paid-up should be carefully considered, as it directly affects the level of your retirement provision. Many underestimate the long-term impact on the maturity benefit. Check your policy terms carefully, especially with regard to the minimum amount and any deadlines for resuming payments later. The Hamburg Consumer Advice Centre recommends working with the insurer to look for solutions before making any changes to contracts. This is the first step to setting things on the right track.
Practical check: When is contribution waiver really worthwhile?
Making a whole life insurance policy paid-up can be sensible in certain situations, for example in the event of short-term financial difficulties. It makes it possible to reduce the monthly outlay without cancelling the policy entirely. Example: Max Mustermann pays in €100 a month and, after ten years, has reached a policy value of €12,000. If he makes the policy paid-up, the €100 monthly premium falls away, but the maturity benefit will be lower than originally projected. The reduction in the maturity benefit can be significant.
However, making the policy paid-up is not always the best solution. Ongoing costs can reduce returns, and the insurance cover, for example through an integrated occupational disability insurance policy, can be reduced or disappear altogether. For policies taken out before 2005, the paid-up period must not last longer than two years in order not to jeopardise tax advantages. A thorough review of the terms and conditions of older policies is therefore essential. Weigh up the pros and cons carefully before you act.
Review alternatives: options beyond premium waiver
Before you make your whole-of-life insurance policy paid up, you should consider at least three alternatives. One option is premium deferral, where you suspend payments for an agreed period and pay them later. This often preserves full insurance cover, but may incur interest costs on the deferred premiums. A second option is reducing the premiums, which lowers the sum insured but keeps the contract active.
A third alternative, especially for older policies with already accumulated surplus, is to pay the premiums from these surpluses. In this case, the ongoing premiums are financed from the existing surplus account until it is exhausted. While this reduces the non-guaranteed maturity benefit, it preserves the guaranteed sum. Choosing the right alternative depends heavily on your individual situation and the policy term. A termination of the life insurance policy should always be the last option. You should clarify the exact terms and consequences of these alternatives with your insurer.
The process of premium exemption: a clear roadmap
The application for premium-free status for your whole life insurance policy must generally be made in writing. Many insurers provide forms for this or accept an informal letter. Your policy number, personal details and the desired date for the premium suspension are important. Usually, the premium-free status takes effect at the end of the current insurance period; with monthly payments, often on the first day of the following month.
The following steps are typically required:
Check the policy conditions for minimum balance and deadlines.
Request information from the insurer about the reduced maturity benefit and the impact on supplementary insurance.
Submit a written application for premium-free status (by post or fax for better proof of submission).
Wait for the insurer’s confirmation and review it carefully.
Careful documentation of the entire process is advisable. Bear in mind that an insurance policy that has once been placed on premium-free status can often only be reinstated with the insurer’s consent and, in some cases, a new health assessment. This underlines the need for a well-considered decision.
Expert knowledge: Legal aspects and pitfalls of paid-up conversion
The right to make a life insurance policy paid-up is enshrined in Section 165 of the Insurance Contract Act (VVG). Accordingly, you can at any time at the end of the current insurance period request conversion to a paid-up policy, provided a minimum insured benefit has been reached. If this is not reached, the insurer pays out the surrender value. The exact definition of the minimum benefit can be found in your contractual documents.
An important aspect is the tax consequences. For policies taken out before 1 January 2005, paid-up status may not last longer than two years in order to retain the tax privileges. For policies taken out later, a period of three years often applies, and at expiry the policy must have been in force for at least twelve years, with the insured person being at least 60 years old (62 for policies taken out after 2012). Different rules apply to a term life insurance policy. If in doubt, seek advice so that you do not suffer any disadvantages.
Long-term effects and resumption of contribution payments
A premium suspension not only reduces the maturity benefit of your life insurance policy with a savings element, but can also diminish death cover and benefits from supplementary insurance policies. Administrative costs continue to accrue and eat into the remaining capital, which can reduce returns over the years. With a very long remaining term, this effect can be considerable. The decision to suspend premium payments should therefore never be taken lightly.
Resuming premium payments at a later date is not always straightforward. The insurer’s consent is often required, and a new medical examination may be requested, especially if supplementary riders such as income protection insurance are affected. If your health has deteriorated, higher premiums or exclusions from cover could be the result. Be sure to clarify the conditions for resuming payments in advance so that you remain flexible. This is an important point when considering how to structure your life insurance.
Before you make your whole-life insurance policy paid-up, we recommend a careful analysis of your financial situation and your contract details. Compare the guaranteed maturity benefit if you continue paying premiums with the paid-up sum assured. Also take into account inflation and the return opportunities of alternative investments for the premiums you save. In many cases, especially with older policies that offer attractive guaranteed interest rates, it is advisable to look for solutions other than a complete premium waiver.
Consider the following points in your deliberations:
How much does the maturity benefit actually decrease?
Will the new sum assured be sufficient for your retirement provision goals?
Is a temporary deferment or reduction in premiums a better option?
What impact does the paid-up status have on important supplementary insurance cover?
Has the minimum sum assured for paid-up status been reached?
Can the policy later be continued without a new medical assessment?
Independent advice can help you make the best decision for your individual situation. At nextsure, we are happy to support you in assessing your options. Careful consideration of all factors is crucial for your financial security.
Conclusion: Premium suspension as a well-considered option
Making a whole life insurance policy paid up can be a sensible measure to bridge short-term financial shortfalls or to permanently reduce monthly outgoings. However, it is essential not to consider this step in isolation, but as part of a comprehensive financial plan. The impact on the maturity benefit, insurance cover and any tax advantages must be carefully reviewed. Often, there are alternatives such as deferring or reducing contributions, which may be more advantageous depending on your individual situation. A distinction from annuity insurance is also relevant here.
Remember that every decision affects your financial future. Consulting an expert can help you avoid pitfalls and find the most suitable solution for you. Take the time to review all options and make an informed decision. Your long-term financial security should always be the priority. Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive concrete optimisation suggestions.
More useful links
Wikipedia provides a comprehensive overview of life insurance in Germany.
The Verbraucherzentrale provides valuable advice on alternatives to cancelling a life insurance policy.
Destatis (Federal Statistical Office) provides the official definition of insurance assets.
The GDV (German Insurance Association) provides a publication with the key figures for German life insurance from 2023.
The Federal Ministry of Finance provides information on the tax treatment of life insurance policies.
Gesetze im Internet (VVG 2008) provides the full text of the German Insurance Contract Act.
The German Bundesbank publishes the 2023 Financial Stability Report.
The GDV (German Insurance Association) provides detailed statistics on life insurance in Germany.
The ifo Institute provides an older but relevant article on the main topic of life insurance in Germany (published in 2002).
FAQ
How do I apply for a premium waiver on my endowment life insurance policy?
Application for premium exemption must be submitted in writing to your insurer. Provide your policy number, personal details and the desired date. Many insurers provide forms, but a letter without a prescribed format is often sufficient.
What alternatives are there to making the policy paid-up?
Alternatives are deferring the contributions (repayment at a later date), reducing the contribution amount (which leads to a lower sum insured), or paying the contributions from surplus participation already accumulated.
What are the tax implications of a paid-up policy?
For contracts concluded before 2005, the exemption period may often not last longer than two years; for newer contracts, not longer than three years, in order to obtain tax advantages (half-income method). In addition, minimum terms and retirement age must be observed.
Will I lose my death benefit cover if I make my policy paid-up?
Death cover generally remains in place, but is recalculated on the basis of the lower capital and is therefore lower. Details are governed by your policy conditions.
Do the costs continue for a paid-up endowment life insurance policy?
Yes, administration charges and, where applicable, risk charges for certain contract components may continue to apply even in a paid-up contract and reduce the capital available.
Is it possible to make every endowment life insurance policy paid-up?
In principle, yes, provided that an agreed minimum sum insured has been reached under the contract. If this is not the case, the insurer may, in some circumstances, terminate the contract and pay out the surrender value.
