What Does Paid-Up Additional Insurance Mean?
Paid-up additional insurance is additional whole life insurance that a policyholder can purchase using dividends from the original policy. Available as a rider, it allows the policy to increase the amount of life and death benefits. Moreover, the policyholder can take a loan against the paid-up additions or surrender their value for cash; however, either would reduce the death benefit and cash value.
Insuranceopedia Explains Paid-Up Additional Insurance
Even though paid-up additions are bought with dividends, they themselves can actually generate dividends over a certain amount of time. Plus, the increase in cash value is tax-deferred. Furthermore, the policyholder can benefit from increased coverage without medical underwriting, which is likely advantageous as the policyholder would be older and may not be as healthy as before. Nevertheless, the premium may be higher due to the policyholder's increased age. Moreover, with two identical whole life insurance policies, one with and one without a paid-up additional rider, the former would likely have a higher cash value and death benefit, while the latter would achieve a higher guaranteed cash value sooner.