What is Paid-Up Additional Insurance?

Paid-up additional insurance is referred to an additional Life Insurance coverage that is purchased by a policyholder through the dividends of the policy and not the premiums. This addition is available in the form of a rider on the entire life policy.

It also enables the policyholders to increase death benefits as well as living benefits by amplifying the cash value of the policy. If needed, you can also take a loan against the paid-up additions or surrender the same for a cash value.

Explaining Paid-Up Additional Insurance

The paid-up additional insurance’s cash value can increase over a period of time. You must note here that these increases are basically tax-deferred. Another significant advantage is that the policyholder can easily use this rider to increase his coverage without dealing with medical underwriting.

In comparison to a basic policy, the premiums of paid-up additional insurance are on the higher side, even without any medical underwriting, as the price generally depends on the age of the policyholder during the time of purchase.

Also, suppose you have taken two almost identical life insurance policies with a similar annual premium. However, one has a paid-up rider, and the other doesn’t. Thus, the one with the rider will offer higher net cash value much sooner than the other one. But the policy with a paid-up addition might have lower cash value and death benefit initially. It may take years, probably decades, for both the policies to have the same death benefits.

Further, a paid-up additional insurance rider should be structured into a policy upon buying. Certain company may let you add the same later; however, age, health, and other similar factors might make this acquisition quite difficult.

As far as the policies with paid-up additional insurance are concerned, they may vary according to the insurance company. While some companies ask you to contribute according to your wish each year, others might stipulate a specific amount that you must pay every year or else you may end up losing the rider.

Paid-Up Additional Insurance Example

Suppose there is a 50-year old man who bought a whole life policy with an annual premium of Rs. 5000 for Rs. 100,000 of the death benefit. In the first year, he contributed an extra amount of Rs. 3000 as the paid-up additional rider.

Now, with this, he is eligible for an immediate cash value of Rs. 2000 while adding almost Rs. 15000 to the death benefit.