Paid-Up Addition
Additional life insurance coverage purchased with dividends from a participating whole life policy, requiring no further premium payments. These additions increase both the death benefit and cash value of the original policy.
Example
“Maria chose to use her policy dividends to purchase paid-up additions, which increased her $100,000 life insurance policy to $125,000 over ten years without paying additional premiums.”
Memory Tip
Think 'PUA = Permanent Upgrade with no Additional payments' - you get more coverage that's fully paid for by your dividends.
Why It Matters
Paid-up additions provide a tax-advantaged way to increase life insurance coverage and build additional cash value using the policy's own earnings. This can significantly enhance the policy's long-term value without requiring additional out-of-pocket premium payments.
Common Misconception
Many people think paid-up additions are free money, but they're actually purchased with dividends that could have been taken as cash. The additions are valuable because they provide permanent coverage without ongoing premiums, not because they cost nothing.
In Practice
Tom owns a $250,000 whole life policy that pays annual dividends of $800. Instead of taking the cash, he uses these dividends to buy paid-up additions worth $2,000 in additional coverage each year. After 15 years, his original $250,000 policy has grown to $280,000 in total death benefit, with the extra $30,000 requiring no additional premium payments and contributing an extra $12,000 to his policy's cash value.
Etymology
The term combines 'paid-up' (requiring no further payments) with 'addition' (extra coverage), developed in the late 1800s as life insurance companies began offering dividend options to policyholders.
Common Misspellings
Compare insurance quotes and save
Related Terms
More in insurance
Other insurance terms you should know
See Also
Need help with spelling?
Instant spelling checker with dialect variants for 2,000+ words.