What does the Paid-Up Option achieve in an insurance policy?

The Paid-Up Option in an insurance policy allows a policyholder to stop paying premiums while still keeping their life insurance coverage in force. This option comes into play usually when a policy has accumulated sufficient cash value, often through dividends if it is a participating whole life policy. When the policyholder opts for this option, the insurer effectively converts the policy to a "paid-up" status, meaning that the insurance coverage remains active without any further premium payments needed, often for a lower amount of coverage than originally planned.

While the policyholder does not need to resume premium payments after choosing this option, the coverage amount is generally based on the accumulated cash value and dividends. This differs from the other choices, where one might imply that premiums are reduced permanently or additional costs are accrued, neither of which aligns with the main function of the Paid-Up Option.