What Are Paid-Up Additions in Life Insurance?
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Paid-up additions are extra life insurance bought with a policy’s dividends.
They allow you to grow your policy’s death benefit without increasing your premiums.
Whole life policies from mutual life insurance companies may be eligible.
If you have a whole life insurance policy that pays dividends, you may have the option of purchasing paid-up additions. Paid-up additions in life insurance are small additional amounts of coverage bought with your life insurance dividends.
Paid-up additions let you increase your death benefit — the payout your beneficiaries could receive if you die — without raising your premiums, because your dividends pay for the additional coverage in full. The extra coverage can help your life insurance keep up with inflation.
You’ll need a participating life insurance policy to earn dividends. Participating life insurance policies are available through mutual life insurance companies, which are owned by policyholders rather than shareholders. Dividends are never guaranteed, though some mutual life companies have a long track record of paying them.
If you use policy dividends to purchase paid-up additions (PUAs), you won’t need to provide new proof of insurability. This means you can get the extra coverage even if you've developed health problems. The additional insurance you can purchase is based on your age at the time the dividend is issued.
Some whole life insurance policies contain a provision that allows the purchase of PUAs with your dividends. More commonly, though, you’ll need to purchase a life insurance rider called a paid-up additions rider to have this option.
Alternatives to paid-up additions in life insurance
There are several alternatives to using dividends to purchase paid-up additions in life insurance. For example, you could choose to:
Receive the dividend payment as cash.
Use it to reduce your life insurance premiums.
Pay down outstanding policy loans.
If you’re shopping for life insurance and want the flexibility to increase your death benefit, there are several other ways to do so without a paid-up additions rider.
A cost-of-living rider lets you purchase extra life insurance to keep up with inflation.
A guaranteed insurability rider gives you the option to purchase additional amounts of insurance at specified times.
A term life insurance rider allows you to add an extra amount of term insurance to a permanent policy for a specified amount of time.
More about life insurance riders
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