Paid-up additions (PUAs) are an option in certain life insurance policies that allow policyholders to increase their death benefit and cash value without having to pay additional premiums.
Essentially, these are small, paid-up life insurance policies that get added to your main policy, using either dividends or other funds available in the policy.
The best part is that once these additions are purchased, they don’t require any further payments.
Over time, Paid-up additions grow, building on the value of your original policy. They can be a smart way to boost your coverage and savings potential without committing to extra out-of-pocket costs.
PUAs are particularly common in whole life insurance policies, where dividends are used to purchase these additions, helping policyholders achieve a larger financial safety net for their beneficiaries or themselves.
What Are Paid-Up Additional Insurance
Paid-up additions are extra pieces of life insurance that you don’t have to pay premiums on once they’re bought.
They may seem small on their own, but over time, they can grow significantly if you use dividends from your policy to purchase more paid-up insurance.
As these additions grow, they also earn their own dividends, which can be used to buy even more coverage. This compounding effect can increase both the death benefit and the cash value of your policy.
One major advantage of PUAs is that you don’t need to go through medical checks to buy them, which can be very helpful if your health has changed since you first bought the policy.
PUAs can also be cashed in or used as collateral for a loan, just like your regular policy. However, you can only add it to whole life policies that pay dividends.
Paid-up additions are a great way to increase your life insurance coverage without needing to go through medical exams.
This is especially helpful if your health has changed since you first bought your policy, as getting more coverage later on could be costly or even impossible.
With this option, you can get more insurance without worrying about health issues.
What Are The Benefits?
The main benefit of this option in your life policy is that, without paying extra premiums or undergoing underwriting, you can increase your death benefit.
Also, you can continue to grow your tax-deferred cash value.
In addition, this option works just like your main policy, so you can cash them out for their value or use them as collateral for a loan.
To buy PUAs, you need a whole life insurance policy that pays dividends. These dividends can also be used in other ways, like reducing your premiums, growing your cash value, or even getting a cash payout.
PUA Riders
Many life insurance companies offer a PUArider, which lets you pay extra premiums to buy more paid-up additions than you could with just your policy’s dividends.
This can be a fast way to grow your policy’s cash value and death benefit. As paid-up additions earn dividends, their value increases over time, buying even more coverage.
A PUA rider must usually be added when you first purchase the policy, though some insurers may let you add it later.
However, factors like your health and age can make adding it later tricky. Just so you know, PUA riders can have different names, like “additional life insurance rider” or “paid-up additions rider,” and each company may offer different rules.
Some allow flexible contributions each year, while others require fixed contributions or may remove the rider if you miss payments.
When Does Using Dividends To Buy Paid-up Additions Make Sense?
Using your dividends to buy paid-up additions can be a smart move for the future. It helps keep your coverage strong and can protect your family’s benefits from losing value due to inflation. This option is worth considering if:
- You want more life insurance without having to take medical exams or go through additional health checks.
- You’re looking to boost your policy’s cash value, which you can use later in life.
However, paid-up additions aren’t necessary for everyone. They aren’t required to make a whole life insurance policy work for you. It’s important to keep in mind that not all providers offer dividends. Also, the options for buying paid-up additions may differ between companies.
Your provider’s rules on how often and how many additions you can purchase could impact how valuable this option is for you.
Paid-up Additions In Life Insurance Alternatives
If you’re not interested in using dividends to buy PUAs, there are other options to consider with your life insurance. You can:
- Take the dividend as cash.
- Use it to lower your insurance premiums.
- Pay off any outstanding policy loans.
If you’re looking for ways to increase your coverage without a paid-up additions rider, there are other choices available:
- A cost-of-living rider lets you buy more insurance to keep up with inflation.
- A guaranteed insurability rider allows you to add more coverage at certain times without needing to prove your health.
- A term life insurance rider adds extra term insurance to a permanent policy for a set period.
These options give you flexibility in adjusting your coverage over time without relying on paid-up additions.
