Paid-Up Additional Insurance: How It Works and Key Considerations

Definition

Paid-up additional insurance (PUA) is a feature of participating whole life policies that lets policyholders use dividends (or extra premiums via a rider) to buy small, fully paid life insurance increments. Each paid-up addition has its own death benefit and cash value, and it continues to earn dividends — allowing value to compound over time without additional underwriting or recurring premiums.

Key takeaways

• PUAs are fully paid increments of whole life insurance purchased with dividends or extra premium.
• PUAs increase both the death benefit and the policy’s cash value.
• PUAs earn dividends themselves, which can be used to buy more PUAs, creating compounding growth.
• You can surrender PUAs for cash or borrow against their cash value.
• PUAs are available only on participating whole life policies (those that pay dividends).

How paid-up additions work

• When a whole life policy issues dividends, one option is to purchase PUAs. These are small blocks of additional, paid-up coverage added to the base policy.
• Once purchased, PUAs require no further premiums. They immediately add to the policy’s cash value and death benefit.
• Because each PUA participates in dividend payments, dividends can be reinvested to buy additional PUAs, increasing the policy’s value over time without medical underwriting.

PUA riders

• Many insurers offer a paid-up additions rider that allows you to contribute extra premium specifically to buy more PUAs than dividends alone would purchase.
• A PUA rider is usually added at policy issue; some companies may allow adding it later subject to age, health, or underwriting.
• Rider features vary: some allow flexible annual contributions within limits, others require fixed contributions or reapplication if dropped.
• Using a PUA rider is generally a long-term strategy to maximize cash value and death benefit; results depend on the rider design and the insurer’s dividend performance.

Special considerations

Dividends
* Dividends are typically paid by mutual (participating) insurers and are not guaranteed. Dividend history matters when evaluating a participating whole life policy.
* If you don’t use dividends to buy PUAs, common alternatives include reducing premium, adding to cash value, paying down policy loans, or taking dividends in cash.

Surrender and loans
* PUAs can usually be surrendered for their cash value or used as collateral for policy loans, similar to the base policy’s cash value.

Reduced paid-up insurance (different concept)
* Reduced paid-up insurance is a nonforfeiture option used when a policy lapses with cash value. It converts the cash value into a smaller, fully paid single whole life policy (lower death benefit based on attained age and available cash value). This is not the same as purchasing PUAs.

Practical example

Illustrative scenario: A 45-year-old buys a whole life policy ($100,000 death benefit) with a $2,000 annual base premium. He elects to contribute an extra $3,000 into a PUA rider in year one. The PUA purchase would immediately increase the policy’s cash value and add a small amount (for example, $15,000 in this hypothetical) to the death benefit. Continued PUA purchases over time compound the policy’s cash value and death benefit. (Numbers are illustrative; actual results vary by insurer and dividend performance.)

When PUAs make sense

• You want to grow the cash value and death benefit over the long term without additional underwriting.
• You expect the insurer to continue paying dividends and want to compound those dividends.
• You prefer a conservative, long-term approach to increasing permanent coverage.

When to be cautious

• Dividends are not guaranteed; reliance on PUAs assumes continued dividend performance.
• Policy structures and rider rules differ by company — compare features, costs, and projected illustrations.
• PUAs are a long-term strategy; it can take many years for their effect to fully materialize.

Conclusion

Paid-up additions are a useful mechanism within participating whole life policies to grow coverage and cash value without further underwriting or recurring premiums. They can be purchased with dividends or via a PUA rider (with extra premium), and they compound over time by earning dividends themselves. Because dividend payments and rider designs vary by insurer, evaluate options carefully and treat PUAs as a long-term element of a permanent life insurance strategy.