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 permanent life insurance ...
  2. Premium Balance

    Premium Balance is the amount of premium that is owed to an insurer ...
  3. Automatic Premium Loan

    An automatic premium loan is a policy provision that lets the ...
  4. Insurance Premium

    An insurance premium is the amount of money that an individual ...
  5. Developed Premium

    A premium based on estimates of a policyholder’s risk profile ...
  6. Waiver Of Restoration Premium

    A clause in an insurance policy that says that the insurance ...
Related Articles
  1. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  2. 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.
  3. 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.
  4. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  5. Insurance

    How Good of an Investment Is Life Insurance?

    Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio? A look at the pros and cons.
  6. Insurance

    The Basics of Premium Financing for Life Insurance

    Here's a look at the role premium financing plays in life insurance and how it works.
  7. Insurance

    What's Better: Whole Life or Term Insurance?

    Life insurance can be a difficult decision to make, especially for a young adult. Here's a look at the benefits and costs of getting whole life insurance.
  8. Insurance

    5 Mistakes That Can Ruin Your Life (Insurance)

    There are many reasons why it's important to have the right amount life insurance. Don't let these simple errors leave you unprotected.
  9. Insurance

    Life Insurance Premium Financing: Worth the Risk?

    Life insurance premium financing lets high net worth individuals buy costly insurance without liquidating assets.
  10. Financial Advisor

    Index universal life versus whole life insurance: A comparison

    Consumers have choices when it comes to life insurance. Knowing your future needs for cash or retirement can make the difference in what you select.
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center