What are Paid-Up Additions in Whole Life Insurance?

Paid-up additional insurance is extra coverage you can access through whole life insurance policies. Using your cover’s dividends, you buy paid-up additional insurance as a rider that allows you to increase the cash value, thus enhancing your living benefit and death benefit.

Throughout this article, we’ll simplify the paid-up additional insurance debacle, explaining the terms as we go to ensure you gain a well-rounded understanding.

 

What Is Paid-Up Additional Insurance?

Instead of premiums, you use the policy’s dividends to purchase paid-up additional insurance. The additions themselves then start earning dividends, and your account experiences indefinite compound value growth over time.

PUA (i.e., paid-up additional insurance) is a type of policy rider. Let’s take a moment to consider the definition of a rider in this context.

 

What Is a Policy Rider?

A life insurance rider is an extra form of insurance that you can add to your basic policy to increase protection and raise the benefits. Numerous types of riders exist, some of which are free and some are paid. But usually, paid riders are low in price, thanks to the minimal underwriting needed.

In a nutshell, they allow you to tailor your permanent life insurance policy to meet specific needs.

Some insurers call riders different names depending on their particular product. However, the most popular types of life insurance riders in Canada are as follows:

  • Guaranteed insurability rider — You typically need a health exam to underwrite the cover when you initially get your whole life insurance policy. Well, this rider allows you to purchase extra life insurance in the future without undergoing another medical exam. It’s not always necessary. But if you think you could need additional cover (i.e., due to having children, etc.), then it can protect you.
  • Accelerated death rider — The accelerated death rider allows you to access a section of your life insurance payout after a terminal illness diagnosis to cover the heightened costs of your remaining years. It’s recommended if your family has a history of illness.
  • Accidental death rider — Standard life insurance pays out following accidental death. However, adding this rider gives your beneficiaries more than the value of your policy if you die because of an accident. In fact, it doubles the payout, making it vital if you’re the only wage earner in your household.
  • Long-term care rider — With this rider, you get a monthly payout if you become a resident of a nursing home or acquire in-house care. It’s a good idea if your retirement income won’t cover such costs.
  • Waiver of premium for disabilities rider — You’re responsible for paying the monthly premiums even if you suffer injury or become disabled with a regular whole life policy. Acquiring a waiver of premium rider ensures you don’t need to pay the premiums if you become permanently disabled or lose income due to sickness or injury. Be sure to chat with Sim Gakhar beforehand, though, as the rider comes with a few limitations that you should fully understand.
  • Child term rider — If one of your children passes away, you get a death benefit with this rider. It’s a term-style addition, so it expires when your child reaches a certain age.
  • Family income benefit rider — With this one, your family receives a monthly income when you die instead of one lump sum.
  • Paid-up additional insurance rider — And of course, paid-up additional insurance is a form of rider. So, let’s jump into the nitty-gritty!

 

Making Paid-Up Additional Insurance Simple

Your paid-up additional insurance’s cash value could inflate over time, all of which are tax-deferred. If necessary, you can use them to heighten your coverage without needing another medical underwriting. Not only is this wonderfully convenient, but it also adds extra value for you if your health has declined since you began the policy.

However, it’s worth considering that the paid-up additional insurance could come with a larger premium than your standard policy. Why? Because the cost depends on your age at the time of purchase.

Policies that allow you to purchase paid-up additions generally have a smaller cash value and a reduced death benefit than covers without this option. With that said, its net cash value increases faster than regular whole life insurance coverages.

 

When Should You Get a Paid-Up Addition?

Ideally, you should acquire paid-up additions when you buy your life insurance policy. Several providers allow you to add the rider later. However, factors like age and health make it an arduous process.

The paid-up additional insurance policies vary wildly from company to company. Some insurers allow you to supply as much or as little as you feel like it. But others request contributions remain the same throughout.

 

Special Factors to Consider When Getting Paid-Up Additions

Before making a decision as to whether a paid-up addition rider is the best option, keep the following three aspects in mind:

  • Reduced paid-up insurance — With this option, you can access a decreased amount of entirely paid permanent life insurance. Your age determines the value of your new policy, meaning the death benefit is tinier than your previous cover.
  • Paying premiums with your cash value pot — You can decide to bundle your cash value into the paid-up insurance. In this case, the policy can meet its premium payments on its own. Although you might have to resume paying premiums if it reaches a point where it can’t cover the costs.
  • Dividends — Only select policies issue dividends, such as participating whole life insurance. Every year, you receive a portion of the company’s profits which you can use to buy paid-up additional insurance or lower your monthly premiums.

 

Discuss Your Paid-Up Additions Options With Sim Gakhar

Is paid-up additional insurance the right option for you? If you’re having trouble deciding, give Sim Gakhar a call. Through tried and true assessments and tailored strategies, Sim can help you make the rider choices that fit your budget, lifestyle, and beneficiaries.

Book a call using the secure, easy-to-navigate online calendar and find peace with paid-up additional insurance.

 

FAQs & Helpful Resources Regarding Whole Life Insurance