DEFINITION of 'Vanishing Premium Policy'

A vanishing premium policy is a form of participating whole life insurance where the policyholder can use the dividends from the policy to pay the premium. Over time, the dividends will increase to the point that they cover the entire cost of the premiums.

BREAKING DOWN 'Vanishing Premium Policy'

When properly constructed, vanishing premium policies can be very attractive to consumers who are worried about longer term fluctuations in income, such as the self-employed, people who wish to start a business or people who wish to retire early.

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