If a policy owner elects the paid-up insurance option, what happens to the premiums?

When a policy owner elects the paid-up insurance option, the correct answer reflects that premiums cease and the protection continues for a reduced amount. This concept is grounded in how paid-up insurance options function within life insurance policies.

Under this option, the policyholder can use the accumulated cash value of the policy to convert their existing coverage into a paid-up status. As a result, the policy does not require ongoing premium payments, which are halted entirely. Instead, the policy remains in force, but typically at a lower benefit amount compared to the original face value. This allows the policyholder to maintain some level of insurance coverage without the need for further payments, thereby ensuring financial protection even if the full coverage is no longer affordable.

In other scenarios, such as continuing full coverage until a certain age or allowing the policy to automatically terminate, the dynamics of paid-up insurance do not apply, emphasizing that the protection does indeed decrease while payments stop. Thus, recognizing the specific mechanics of paid-up insurance helps clarify why the chosen answer is accurate.