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What is Paid-Up Additional Life Insurance?

Whole life insurance offers substantial, lifelong protection for your loved ones through the death benefit and steady wealth-building potential through the cash value growth component. Normally, you can’t adjust your whole life death benefit coverage once you purchase the policy. However, if your whole life insurance pays dividends, you can reinvest them into paid-up additional life insurance for more coverage and cash value growth. This article explains how paid-up additions work, their benefits, and some alternatives to help you understand your options for using life insurance dividends.

How paid-up additions in life insurance work

Paid-up additional life insurance, or PUA, is extra coverage you can purchase with a PUA rider or life insurance dividends if your policy pays them. Purchasing paid-up additional life insurance helps increase your death benefit and cash value without raising your premiums.1 As a result, you can get more coverage and faster potential tax-deferred growth without paying more out of pocket.

Benefits of paid-up additional life insurance

Paid-up additional life insurance offers you several benefits:1

No increase in premium payments

Paid-up additional life insurance coverage represents coverage you already paid for with dividends the policy earned. Therefore, it does not require an increase in premiums. You’ll receive more coverage without expanding your life insurance budget or paying for more coverage upfront. This can be helpful if you need to boost coverage over the long term since premiums for new policies increase as you get older.

Larger death benefit

Reinvesting your life insurance dividends into paid-up additional life insurance coverage helps you to easily raise your death benefit coverage. This can help you grow your death benefit to keep pace with inflation or increasing income.

No additional underwriting

You may have to undergo a medical exam if you seek another traditional life insurance policy. Paid-up insurance, on the other hand, does not require new underwriting or medical exams. This helps you to boost your coverage quickly and conveniently as your needs change.

Increased cash value

Some of each payment you make on your policy goes into the cash value, including payments for paid-up additional life insurance. Therefore, purchasing paid-up additional life insurance helps you accelerate your tax-deferred growth without paying more.

Potential dividend compounding

The larger your death benefit, the more dividends you receive. Therefore, if you purchase more paid-up life insurance with your dividends, you could earn more if the insurer pays a dividend again.1 This could help accelerate your coverage and cash value growth further.

Easier policy management

Paid-up additional life insurance helps make it easy to raise your coverage amount without purchasing and managing two separate policies. This means you have fewer premiums, death benefits, and cash values to track. As a result, managing your life insurance coverage can be easier.

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Who should get paid-up additions?

Paid-up additional life insurance can suit a variety of policyholders. Here are some types of people who could benefit:

  • Retirees who want access to more cash value: Paid-up additions can help retirees grow cash value faster, supplementing retirement funds and giving them access to more cash.

  • Young families: Young families may need to increase coverage and cash value as their children get older or if they plan to have more children. Paid-up additional life insurance can help them grow both without spending extra. Plus, they can lock in competitive rates on a policy early on.

  • High-net-worth individuals seeking inflation protection: High-net-worth individuals looking to preserve capital while beating inflation may consider paid-up additional life insurance. They can help grow their death benefit and cash value regularly, potentially beating inflation and earning tax-deferred cash value returns.

  • Older policyholders who want to avoid more underwriting: Older policyholders, such as retirees, may wish to grow coverage to protect their spouse or leave a larger legacy. However, they may prefer to avoid new underwriting. Paid-up additional life insurance can help boost their death benefit without a premium increase.

Other ways to use your life insurance dividends

Not everyone needs to purchase paid-up additional life insurance. Here are some other ways you can use your life insurance dividends:2

  • Get cash: Receive your dividends as a cash payment via check or ACH direct deposit.

  • Lower your premium payments: Use your dividends to cover some or all of your premiums, which can help reduce the out-of-pocket cost of maintaining your current coverage.

  • Earn interest: Save your dividends in an interest-bearing account with the insurer. You can withdraw these funds at any time. Interest earned may be taxable.

  • Pay down policy loans: Use your dividends to help pay down loans you took out against the cash value.

Learn more about life insurance

Paid-up additional life insurance can be valuable for dividend-paying whole life insurance policyholders. You can reinvest your dividends for a larger death benefit, faster cash value growth, and dividend compounding without higher premiums or new underwriting.

If you have more questions about dividend-paying life insurance or are ready to explore your coverage options, Aflac is here to help. Speak with an agent today to learn how you can financially protect your loved ones.

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