Definition of "Vanishing Premium"

When a life insurance policy rapidly builds cash value, sometimes the value is sufficient enough to pay the premiums. So, given a certain amount of time, no more premium payments are necessary. This is also known as a "premium offset." In illegal "vanishing premium" schemes, an agent promises that the premium will vanish but it doesn't.

On many forms of cash value life insurance the premiums can "vanish" or be discontinued. The premium can vanish when the cash accumulation account (less any policy loans) exceeds the projected net single premium for all the future benefits. It is very important to understand that this calculation is generally based upon current assumptions including interest rates and dividends on par policies. If the interest rates, policy expenses or mortality experience changes, additional premiums may become due in order to maintain the policy.