A term which is no longer used, as it was found to be misleading. An optional traditional life insurance planning technique that used dividends and/or interest to offset the premiums on selected cash value life insurance policies. It was called "vanishing premium" because it allowed the policyholder to stop paying premiums out-of-pocket after a certain number of years (depending on issue age) with no reduction in the original policy or guaranteed cash values. During the premium-paying years, dividend dollars were used to buy paid-up additions. At the point at which the policy became self-supporting, the dividend option was changed to premium reduction, and the balance of the premiums were paid each year by surrendering paid-up additions.
Usage:
According to the sales illustration, Morton's premium would modify or vanish in ten years, under current interest assumptions.