Paid-up additional insurance, also known as PUA, is a valuable feature found in whole-life insurance policies. It allows policyholders to utilize dividends, which are profits earned by the insurance company, to purchase additional amounts of life insurance coverage.
These increments in coverage are fully paid for without any additional premiums being required. Not only does paid-up additional insurance bolster the death benefit provided to beneficiaries upon the policyholder’s passing, but it also enhances the policy’s cash value, thereby increasing its living benefits.
The mechanism behind paid-up additional insurance is straightforward yet potent. When dividends are generated from a whole-life policy, policyholders have the flexibility to allocate these dividends in various ways, one of which is acquiring paid-up additional insurance.
The amount of additional coverage that can be obtained is determined by the terms set by the insurance provider, the dividend amount, and the policyholder’s age.
Over time, these supplementary mini-policies accrue dividends and accumulate cash value, mirroring the growth trajectory of the primary policy. This growth, coupled with the policy’s benefits, serves as a powerful tool for bolstering insurance protection and wealth accumulation without incurring out-of-pocket expenses.
Undoubtedly, this makes paid-up additional insurance an enticing option for policyholders seeking to amplify the value and utility of their life insurance policies.
How Does It Work?
The operation of paid-up additional insurance is straightforward and easily understandable. When a whole life insurance policy generates dividends, the policyholder has several options for utilizing these dividends.
One such option is to purchase paid-up additional insurance. In this scenario, the insurer utilizes the dividend to acquire additional life insurance for the policyholder’s life.
However, the amount of additional coverage obtained is contingent upon the size of the dividend and the policyholder’s age.
Moreover, the supplementary mini-policies have the capacity to accumulate cash value, earn dividends, and even amalgamate with the policyholder’s benefits over time.
Since they are deemed paid up, there are no additional premiums required for these extra coverage.
Consequently, they remain active until the policyholder passes away or decides to cancel the primary policy.
What Does Paid-Up Additional Insurance Cover?
Paid-up additional insurance enhances and augments the death benefit of the primary life insurance policy. Consequently, beneficiaries receive the original policy’s death benefit upon the policyholder’s demise. Also, they get the additional amount from the paid-up additions.
Furthermore, as paid-up additions accumulate cash value, they enhance the living benefits of the policy. This increased cash value can be withdrawn or borrowed against, providing financial flexibility to policyholders during their lifetime.
What Does It Not Cover?
Paid-up additional insurance does not extend the coverage provided by the original life insurance policy. In simpler terms, it does not offer coverage for events or risks that are not covered by the base policy.
For instance, if the base policy excludes coverage for death due to specific conditions or activities, such as pre-existing health conditions or extreme sports, the paid-up additions will not cover them either.
Paid-up additions do not offer independent long-term care riders or accelerated death benefits unless explicitly stated in the policy terms.
How Much Does Paid-Up Additional Insurance Cost?
The whole life insurance policy’s dividends cover the cost of paid-up additional insurance, eliminating the policyholder’s out-of-pocket expenses.
However, the precise cost of this insurance type depends on the dividend amount, which is influenced by factors such as the policy’s face value and the insurer’s financial performance.
It’s important to note that dividends are not guaranteed, meaning the ability to purchase additional coverage may vary from year to year.
The policyholder’s age and cash value at the time of dividend allocation can influence the additional coverage coverage available.
How To Get Paid-Up Additional Insurance
To obtain a paid-up additional insurance policy as a policyholder, you must have a whole life insurance policy that pays dividends.
Also, policyholders have the option to use their dividends to purchase additional coverage by selecting this option through their policy management choices. This can be done either during the annual dividend decision process or at the end of the policy term.
Assess Your Policy
Do this by understanding your current whole life insurance policy, particularly regarding eligibility for this insurance type and dividend options.
Consult With Your Insurance Provider
Reach out to your insurance provider to discuss your interest in utilizing your dividends for paid-up additions. By doing so, they can provide specific details about how it works within your policy. And also any potential impacts on your policy’s performance.
Make Your Decision
If your policy is eligible and you wish to utilize the dividends for this insurance, you’ll need to formally select this option. Your insurance company will assist you in this election.
Keep Tabs on Your Policy
It’s important to review and check your policy statements regularly to stay informed about their performance. Over time, the value of your policy can increase significantly.
In conclusion, paid-up additional insurance greatly enhances the value and benefits of a whole life insurance policy. Understanding its mechanics and maximizing its utilization can significantly bolster legacy planning and financial security.
