Vanishing Premium Policy

Certain kinds of life insurance policies build cash value over time, and pay dividends from that value. They act as both insurance and investment.

You send in your regular premium payments and, over the course of a number of years, those funds build up a pot of money (the policy's cash value). Meanwhile, at a certain point, the insurance company starts sending you dividend checks (this part works kind of like an annuity).

So, deep into the policy's life, you are sending premium checks and they are sending dividend checks. At a certain point, the dividends become the same as the premiums...meaning they cancel each other out. That event defines the vanishing premium policy. At a certain point, the premium effectively goes "poof."