Vanishing Premium
What is ‘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.
Explaining ‘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.
Further Reading
- The law and economics of vanishing premium insurance – heinonline.org [PDF]
- The external finance premium and the macroeconomy: US post-WWII evidence – www.sciencedirect.com [PDF]
- Contemporary Real Estate Financing Technqiues: A Dialogue on Vanishing Simplicity – heinonline.org [PDF]
- NAFTA's Financial Convergence: Measurement by Dynamic Moment Analysis of Daily FX Forward Term Premiums – papers.ssrn.com [PDF]
- Market distress and vanishing liquidity: anatomy and policy options – papers.ssrn.com [PDF]
- Verifiability and the vanishing intermediate exchange rate regime – www.nber.org [PDF]
- Vexing Problem of Reliance in Consumer Class Actions – heinonline.org [PDF]
