PUA 101: Are Paid-up Additions a Smart Idea? (the Answer Is Absolutely)

In 2020, many life insurance companies saw double-digit growths in policy sales. That’s in comparison to the number of life insurance policies they sold in 2019. Despite this, just a little over half of US adults now own a life policy.

However, Deloitte predicts the global life insurance sector to grow by 3% in 2021. So, if you don’t have a life policy yet, now’s the best time to purchase one. Besides, the sooner you get a whole life policy with paid-up additions, the bigger the benefits you get.

What exactly are these “additions,” though, and how can they boost your benefits? What makes them a smart and worthy life investment?

This guide will answer all these questions, so be sure to keep reading!

What Are These Paid-up Additions All About?

Paid up additions (PUAs) are also known as “paid-up riders” (PURs). They serve as an extra or additional whole life insurance coverage. You can think of PUAs or PURs as “mini” whole life insurance policies within a standard whole life policy.

As a mini policy within a policy, PUAs increase the overall value of the entire policy. One way it does so is by raising the main policy’s overall death benefit. Moreover, a whole life policy with a PUR has a higher guaranteed net cash value than one without.

So, a whole life policy with paid-up additions yields bigger death and living benefits.

How Do Paid-up Insurance Riders Work?

On its own, whole life insurance earns cash value for as long as the insured sustains the policy. Keep in mind that whole life coverages don’t expire, unlike term insurance. So long as policyholders pay their premiums, their whole life insurance remains valid.

For this reason, whole life insurance earns cash value for as long as the policy is intact. A huge chunk of the premium payments goes toward the death benefit, while some build up cash value. The latter also increases over time, thanks to its compounding interest.

If you include a PUR to the policy, more money will go toward both its death benefit and cash value. Of course, this also means that your premium payments will be higher.

Most insurance companies require upfront PUR purchases. This means that you might have to buy the paid-up additions together with the whole life policy. This is perfectly fine, as it means that the “mini” whole life policy starts to accrue interest right away.

Some insurers do permit existing policyholders to purchase PUAs at a later date. This is an ideal set-up if you can’t make bigger premiums payments at the start of your policy.

Bigger Death Benefits

Did you know that the average casket already costs more than $2,000? However, some mahogany or bronze caskets can cost five times more, with prices reaching up to $10,000! That’s already a lot of money, and it doesn’t even cover basic funeral service fees.

The thing is, the high cost of funeral services is only one of the issues mourning families face. A much bigger concern is the potential loss of a household’s primary breadwinner. The most at risk are single-income families, which comprise one in four US households.

In any case, the loss of income can take away the roof over a family. Granted, mortgage debts don’t get passed on to the living survivors of a borrower who dies. However, the survivors would still need to keep paying the mortgage if they want to stay in that house.

The thing is, only about four in 10 US homes are mortgage-free. If yours isn’t one of these, it’s best to consider getting a whole life policy with a bigger death benefit. If you get a policy with paid-up additions, you can leave your beneficiaries with a bigger benefit.

More Substantial Living Benefits

Paid-up insurance riders allow you to cash in bigger living benefits. This is especially true if you purchase the paid-up additions up-front. More of your premium payments go toward the policy’s cash value, so it accrues more interest.

PURs also accrue interest on a compounding basis. So, the overall cash value it builds gets bigger and bigger with each passing year. That’s how a whole life policy’s cash value with a paid-up option swells faster than one without.

Since you earn money faster with your PUI, you may be able to withdraw against your policy sooner. You can also wait a bit longer so that you can cash out a larger chunk of your living benefits. Either way, you can use your earnings whichever way you want, as it’s your money, after all.

Even More Earnings With Dividends

As a stand-alone mini whole life policy, PUAs can also earn dividends themselves. In this case, “dividends” are part of an insurance company’s profit distribution. They award these to their policyholders with PURs, usually once a year.

If you acquire dividends with your paid-up additions, you can use it to pay some of your policy premiums. You can also convert their value to secure reduced paid-up insurance costs. Either way, these profit-sharing tools help policy owners save on premium payments.

Some insurers also permit policyholders to use dividends to raise their PUR’s value. In this case, you add the dividends’ value to that of your paid-up additions. It starts to accrue interest, too, as it already becomes part of your PUR.

Make the Most Out of Your Whole Life Policy With a PUR

As you can see, paid-up additions are an excellent way to boost your whole life policy’s benefits. At the very least, it guarantees your beneficiaries a larger amount. You also get to enjoy more substantial earnings that you can use while you’re still around.

So, as early as now, consider purchasing a whole life policy with a paid-up insurance rider.

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