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Paid-Up Additional Insurance Explained

Whole life insurance companies offer multiple provisions that let you customize a policy. One of these that is sometimes available is called paid-up additional insurance (PUA). Particularly, it can raise your policy’s value with time and provide additional cash to withdraw or borrow against.

What is Paid-Up Additional Insurance?

To begin with, paid-up additions allow you to increase your policy’s death benefit and life insurance value in small increments. They also earn dividends, which give a compounding effect to your earnings over time. Basically, dividends are money that your insurance company pays you if its business performed well in the previous year.

Rules governing paid-up additional insurance vary by company. Some cases permit you to purchase as much or little PUA as you want. On other the hand, some may require you to purchase a consistent amount annually. Otherwise, they could remove the rider, and you would have to re-apply for it.

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If you add a PUA rider when you buy a whole life insurance policy, then you may need to let your dividends build up before you can purchase addition insurance, However, that can take several years.

In contrast, if you later add the PUA rider to an existing policy, then the existing dividends can be used to purchase PUAs immediately.

Paid-Up Additional Insurance | Benefits

Of course, paid-up additional insurance comes with some benefits that make them appealing to policyowners. Some of them are:

  • No medical exams are necessary: Normally, increasing your life insurance policy’s benefit in the future may require you to undergo a medical exam. But with PUA insurance, you will usually not need to.
  • You can increase life insurance policy value at no cost. Using life insurance dividends, you can increase your death benefit and cash value amount at no extra cost.
  • Tax-deferred growth of cash value. If you never surrender or sell the policy, then you won’t incur any taxes.
  • Surrender value. If you ever need extra cash, you can surrender PUA insurance whenever you want to for additional cash. Additionally, you can choose to borrow against the cash value of PUAs.
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Do You Need Paid-Up Additional Insurance?

Paid-up additional insurance is not a crucial part of life insurance. However, it is a convenient way of increasing your death benefits and maximizing the growth of your cash value.

Alternatives to Paid-Up Additional Insurance

Generally, if you hold a participating whole life insurance policy, then you will receive dividends from the life insurance company. Dividends are guaranteed, but if you do get them there are ways to use dividends besides buying PUAs:

  • Receiving cash payments. 
  • Reducing the premium: You can reduce how much you pay in premiums by applying dividends toward the amount due.
  • Accumulate: You can choose to put the dividends in your life insurance policy’s cash value account  to earn interest. You can withdraw them later when needed.
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