Reduced Paid-Up Insurance is a “Non-Forfeiture Clause” built into most all Whole Life insurance policies. This is the “end of the rope” savior, in the event that cash flow simply dies and you don’t see a light at the end of the tunnel for many years.
This is another reason why you should always be using Whole Life insurance instead of Universal Life insurance to implement the Infinite Banking Concept. Why reduce your options when you don’t have to. While we hope never to have to use that feature, it is nice to know that it is available.
The insurance company reduces your Death Benefit and makes your policy “paid up”, so no more Premiums are required nor allowed. It’s not a strategy you can undo, but it will keep you from losing the money you’ve paid in so far. This amount of coverage varies over time and is typically much smaller than what your existing policy would cover, but at least this would allow you to know that regardless of what happens, there is an option for keeping some degree of permanent insurance in place. This is like an insurance policy on your insurance policy, so that even in worst case scenario, you would still have some permanent life insurance coverage in place.