Zombie Policy
An insurance policy that appears to be active but provides little to no meaningful coverage due to extremely low cash values, high fees, or policy loans that have nearly depleted its value. These policies often continue to exist because policyholders are unaware of their deteriorated state or because they generate ongoing fees for insurers.
Example
“After years of policy loans and high fees, John's whole life insurance had become a zombie policy with only $200 in cash value despite paying premiums for 15 years.”
Memory Tip
Think 'living dead' - the policy is technically alive (active) but dead in terms of actual value or protection it provides.
Why It Matters
Zombie policies can drain your finances through continued premium payments while providing inadequate protection for your beneficiaries. Identifying and addressing these policies can free up money for better insurance coverage or other financial goals, potentially saving thousands in unnecessary premiums.
Common Misconception
Many people assume that as long as they're paying premiums and receiving statements, their policy is providing adequate coverage. In reality, zombie policies may have such diminished death benefits or cash values that they're essentially worthless investments despite appearing active on paper.
In Practice
Sarah bought a $100,000 whole life policy in 2010, paying $2,400 annually. After taking multiple policy loans totaling $15,000 and with accumulated interest, her death benefit dropped to just $25,000 while her cash value fell to $800. Despite paying $33,600 in premiums over 14 years, her policy had become a zombie - technically active but providing minimal value to her beneficiaries.
Etymology
The term combines 'zombie' (referring to something that appears alive but is essentially dead) with 'policy,' reflecting how these insurance contracts continue to exist despite providing minimal benefit to the policyholder.
Common Misspellings
Compare insurance quotes and save
Related Terms
More in insurance
Other insurance terms you should know
See Also
Need help with spelling?
Instant spelling checker with dialect variants for 2,000+ words.