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.

RELATED TERMS
  1. Vanishing Premium Policy

    A vanishing premium policy is a form of participating whole life ...
  2. Premium Balance

    The amount of premium that is owed to an insurer for a policy, ...
  3. Insurance Premium

    The amount of money that an individual or business must pay for ...
  4. Automatic Premium Loan

    An insurance policy provision that allows the insurer to deduct ...
  5. Developed To Net Premiums Earned

    The ratio of developed premiums to net premiums earned over a ...
  6. Earned Premium

    The amount of total premiums collected by an insurance company ...
Related Articles
  1. Financial Advisor

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
  2. Insurance

    How to Choose Permanent Life Insurance Policies

    When does it makes sense to buy a guaranteed rather than a non-guaranteed life insurance policy?
  3. Financial Advisor

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  4. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  5. Insurance

    Life Insurance: putting a Price on Peace of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  6. Retirement

    Beware the Sneaky Math of Universal Life Insurance

    Universal life insurance's cash value can be a cash cow – if there's any left. Read on to see if it'll work as an income source after you've retired.
  7. Insurance

    Dividend-Paying Whole Life Insurance: What to Know

    Many whole life insurance policies pay dividends. Here are what policyholders need to consider.
  8. Retirement

    Permanent Life Policies: Whole Versus Universal

    Permanent life insurance combines lifetime insurance with savings to provide lifelong security. Premiums are quite high because they’re partially invested.
  9. Insurance

    Does Buying a Guaranteed Life Insurance Policy Make Sense?

    When does it make sense to buy a life insurance policy that is guaranteed?
Hot Definitions
  1. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  2. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  3. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  5. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  6. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
Trading Center