Vanishing Premium

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DEFINITION of 'Vanishing Premium '

A type of periodic fee, paid in exchange for an insurance policy, that eventually disappears because the investment return earned by the cash value of the policy is sufficient to pay the fee. Vanishing premiums are a feature of some permanent life insurance policies. After the policyholder pays the policy premium for a number of years, the paid premiums earn enough money that the policy holder no longer has to pay premiums out of pocket.

BREAKING DOWN 'Vanishing Premium '

A common criticism of vanishing premium policies is that insurance salesman may mislead consumers regarding the number of years for which they will have to pay a premium before the policy begins to support itself. If the projected investment returns used in the insurance illustration turn out to be overly optimistic, the policyholder may have to pay premiums out of pocket for more years than expected.

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RELATED FAQS
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    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Full Answer >>
  2. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage age ... Read Full Answer >>
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    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
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    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
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    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>
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    Insurance policies have deductibles for behavioral and financial reasons. Moral Hazards Deductibles mitigate the behavioral ... Read Full Answer >>

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