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. 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.
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.
