insurance

Paid-Up Addition

Additional life insurance coverage purchased with policy dividends that requires no further premium payments. These additions increase both the death benefit and cash value of a participating whole life insurance policy, and they earn dividends themselves.

Example

“Rather than taking his $500 annual dividend in cash, Robert used it to purchase paid-up additions to his life insurance policy, increasing his death benefit by $2,800 with no additional premium payments required.”

Memory Tip

PUA = 'Permanently Upgraded Amount' - you use dividends to permanently increase your insurance with no more payments needed.

Why It Matters

Paid-up additions offer a tax-advantaged way to increase life insurance coverage and build cash value using the policy's own earnings. This strategy can significantly grow both death benefits and living benefits over time without requiring additional premium payments from the policyholder's pocket.

Common Misconception

Some people think paid-up additions are the same as term insurance riders, but paid-up additions are permanent coverage with cash value that never expires. Others believe they can buy paid-up additions anytime with cash, but they can typically only be purchased with policy dividends or through specific policy provisions.

In Practice

Susan owns a $100,000 whole life policy that pays $600 in annual dividends. Instead of taking cash, she uses dividends to buy paid-up additions. At age 45, her $600 dividend purchases $3,200 in additional death benefit coverage. Over 20 years, her accumulated paid-up additions total $75,000 in death benefit and $52,000 in cash value. Her original $100,000 policy has grown to $175,000 in total death benefit, and her total cash value is now $89,000 ($37,000 from base policy plus $52,000 from additions), all funded by the policy's own dividend earnings.

Etymology

The term combines 'paid-up' meaning fully paid for with no future payments required, and 'addition' referring to extra insurance coverage added to the base policy.

Common Misspellings

paid up additionpayed-up additionpaid-up aditionpaid-up addtion

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