What Is Paid-Up Additional Insurance? (2024)

FAQs

What Is Paid-Up Additional Insurance? ›

Paid-up additional insurance is additional whole life insurance that is "paid up" (paid for) when purchased. As with your base policy, paid-up additional insurance is eligible for dividends and builds cash value on a tax-deferred basis.

Paid-up additional insurance is additional whole life insurance coverage that a policyholder purchases using the policy's dividends. Paid-up additions are like small packets of life insurance that are entirely paid for. They can earn dividends, and the value of each paid-up addition compounds indefinitely over time.

Paid-up Insurance Definition

A paid-up insurance policy is one where the policyholder stops premium payment but continues to enjoy insurance coverage. The sum assured in such cases reduces to a value based on the number of premiums paid till date.

A paid-up addition is a small chunk of whole life that is added to a base whole life policy often through extra premium payments, whereas the reduced paid-up insurance option is chosen when someone no longer wants to pay premiums and henceforth reduces their base policy.

With the paid-up additions option, dividends provided are only used to purchase paid-up additions, which grows your cash value faster. With the enhanced insurance option, dividends are used to pay for one-year term and paid-up additions, so the cash value does not build as quickly.

Benefits of paid-up additions

The benefit of reinvesting paid-up additions into your life insurance policy is that, without paying additional premiums or going through underwriting, you can: Increase your death benefit. Further grow your tax-deferred cash value.

Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. A company could, however, receive authorization to sell more shares.

While many people think “paid-up life insurance” is a type of policy they can purchase, it's actually a state or condition where your coverage is paid-in-full (fully funded) and you do not need to make any additional premium payments in order to maintain the policy.

The paid-up value of an insurance policy is proportional to the premium payments. It is calculated using the paid-up value formula, which is: Paid-up value = [(Number of years for which premium has been paid/Total policy term) * (Total Sum Assured)]

A life insurance policy in which if all the premium payments are complete and the insured is free of all payment obligations, the policy stays intact until insured's death or termination of the policy is called paid-up policy. Description: Paid-up policy falls into the category of traditional insurance plans.

What is the paid-up addition option used for? ›

Paid-up additions allow you to increase your policy's death benefit and life insurance cash value in small increments. PUAs also earn dividends, providing a compounding effect on your earnings over time.

Because the growth of a PUA is not taxable, the taxable equivalent yield needed to equal the same net after-tax result is much higher. (See the table below). The fact that Paid-Up Additions are not taxable becomes an even bigger deal as taxes go up.

On surrendering a paid-up life insurance, the policyholder will receive the special surrender value, which can be estimated by adding the paid-up value to the surrender value factor. When one stops paying premiums after a certain period, the policy continues but with a lower sum assured.

The policy becomes paid-up once the policy owner satisfies the premium payments necessary for paid-up status. Once the policy is paid-up, it's guaranteed to remain in effect for the rest of the insured's life. Whole life insurance policies come with a schedule of required premiums.

An additional insured extends liability insurance coverage beyond the named insured to include other individuals or groups. An additional insured endorsem*nt protects the additional insured under the named insurer's policy allowing them to file a claim if sued.

You can cash out a life insurance policy. How much money you get for it will depend on the amount of cash value held in it. If you have, say $10,000 of accumulated cash value, you would be entitled to withdraw up to all of that amount (less any surrender fees). At that point, however, your policy would be terminated.

A paid-up policy offers much greater protection for your beneficiaries than a lapsed one, which will leave them with nothing. By converting the policy to paid-up, you ensure that the premiums you have paid up to that point count for something.