Paid-Up Additional Insurance

What Does Paid-Up Additional Insurance Mean?

Paid-up additional insurance is extra whole life insurance that a policyholder can purchase using dividends from their original policy. Offered as a rider, it increases the total amount of life and death benefits. Additionally, the policyholder can take a loan against the paid-up additions or surrender their value for cash; however, either action would reduce both the death benefit and the cash value of the policy.

Insuranceopedia Explains Paid-Up Additional Insurance

Although paid-up additions are purchased with dividends, they can themselves generate dividends over time. Because dividends make the rider possible in the first place, paid-up additions only work with a participating life insurance policy, which returns a portion of the insurer’s surplus to policyholders each year. Additionally, the increase in cash value is tax-deferred. The policyholder can also benefit from increased coverage without undergoing medical underwriting, which is advantageous, especially as the policyholder may be older and not as healthy as before. However, the premium may be higher due to the policyholder’s increased age. Since whole life premiums already cost several times more than term coverage, it helps to check current whole life insurance rates before adding paid-up additions on top.

Moreover, when comparing two identical whole life insurance policies—one with a paid-up additional rider and one without—the former is likely to have a higher cash value and death benefit, while the latter may achieve a higher guaranteed cash value sooner. Dividend performance varies between carriers, so anyone weighing this rider should compare the best life insurance companies to see which ones have the longest track records of actually paying dividends.