If you intend to accelerate the practicality and value of your whole life insurance plan, incorporating a paid-up additions rider also called PUA is a strategy worth embracing.

This insurance add-on is an intelligent step that anyone looking for financial freedom through infinite banking needs. But how can you identify whether paid-up additions (PUAs) fit your needs?

Keep reading to discover more concerning paid-up additions and how you can take advantage of them to achieve your financial goals.

What Are Paid-Up Additions (PUAs)?

The term Paid-Up Additions might not be new in your ears since most financial advisers sing about it. This feature is designed to raise the value of your whole life insurance policy as a tool for wealth creation. But before we dive into further details on how it operates, it’s crucial to understand you can make money courtesy of a whole life insurance plan in what is commonly known as becoming your bank.

As opposed to term life insurance policies, whole life insurance has a cash value. As you remit your premiums every month, take it like you are keeping a portion of that premium in a high-yield savings account. As time goes on, your whole life insurance policy earns you interest and possibly dividends, raising its value.

When the cash value of your policy increases, you get an opportunity to borrow cash from what is stashed in your policy. When you can loan yourself some cash, you simply become your own banker. This forms part of the infinite banking concept Canada for financial independence.

Paid-up additions in infinite banking in Canada are not a mandatory part of a whole life insurance policy, but just a supplemental addition. You can add PUAs at the onset of your policy to accelerate your cash value growth, or you can add them later to your policy to raise your overall gain. Basically, PUAs are an add-on premium to your whole life insurance policy that will raise the overall death benefit as well as the cash value of your policy.

Paid-up additions broaden your earning potential and offer you more flexibility. They can enable you to raise the worth of your policy without the need for extra medical underwriting. Some individuals utilize paid-up additions to raise their overall gains several years after purchasing their policy.

What is a Paid-UP Additions Rider?

A paid-up additions rider refers to the supplemental policy feature that you can use to enhance your whole life insurance policy. Incorporating a rider into your whole life insurance plan is a great strategy for the consistent addition of instant cash value to your insurance plan. A PUA rider allows you to pump more cash into your insurance policy, allow the cash to accrue dividends, as well as borrow that portion of your policy hassle-free.

Depending on your insurance plan, you may be paying extra into the base premium or your paid-up additions rider. In case you choose a paid-up additions rider, you need to understand how much cash the rider will take and how much will go toward the premium. Through that, you will be able to understand at what point in time you will be able to borrow against your cash value.

If you decide to transfer one insurance policy’s cash value to another whole life policy in the U.S.A., the 1035 tax-free exchange will develop a PUA rider. The feature is automatic, meaning that if your financial adviser recommends this act, there are no additional steps you need to take to claim the paid-up additions rider.

Paid-up additions riders can be incorporated into your whole life insurance policy at any moment, but incorporating them into your original policy can be essential in growing the cash value of your plan quickly. Most financial experts consider paid-up additions riders as the ideal method to develop a ‘supercharged’, cash-rich policy that creates a way for infinite banking in Canada.

Advantages of Paid-UP Additions

If your whole life insurance company offers dividends, paid-up additions are the best way to enjoy the larger piece of the cake, going by the infinite banking concept Canada.

When you acquire paid-up additions, it basically means you have added the purchase worth into an account to appreciate guaranteed cash value as well as raise your dividends. In case you intend to save cash and in return earn huge sums of gains, purchasing paid-up additions can offer an efficient way to allow your funds to earn dividends. The cash can then be utilized to acquire additional paid-up additions, consequently leading to the growth of the overall cash value of your policy.

You can utilize the funds in your whole life insurance in two major ways: cash in paid-up additions, or borrowing a loan against it. Using your policy as collateral enables you to access your cash value while allowing your cash value to keep on compounding, even though you will be required to pay back the policy loan with interest. When you surrender paid-up additions, you get a chance to cash out funds you invested in the policy without repaying yourself, as happens with savings accounts.

Paid-up addition is a fantastic method to increase your income tax-free, more so for younger individuals wishing to increase their whole life insurance policy’s cash value.

How to Get Paid-Up Additions

Using Dividends

Whether you are a first-time whole life insurance policy owner or you already own one, you can add additional or more paid-up addition to enhance its value.

However, you need to understand that the paid-up addition feature only applies to whole life insurance policies that are ‘participating”. A participating insurance policy refers to a policy that earns the policy owner dividends (accumulated from the annual profits of the company). The better the financial performance of your insurance career, the higher the dividend you earn. You use the money you earn as dividends to buy paid-up addition. You can use the dividends to purchase additional paid-up addition, and continue with the cycle. Some financial advisers describe it as re-invested dividends. This can enable you to convert your whole life insurance policy into a cash cow, and the extra cash infusion leads to the growth of your death benefit.

The only insurance plan that allows you to utilize paid-up additions is a dividend-paying whole-life policy which allows diversion of the earnings to buy it, experiencing a dollar-for-dollar growth of the total value of your policy. It is not guaranteed that you will receive dividends every year; however, the larger your policy’s cash value, the more cash you will be required to draw on for daily expenditures.

The other permanent insurance types, such as Universal Life (UL), Variable Universal Life (VUL), and Indexed Universal Life (IUL) insurance policies, don’t have an option for paid-up addition. Also, term life insurance does not offer an investment feature despite being cheaper to purchase. It simply covers the policyholder for the period when it’s needed the most.

Using Personal Cash

Apart from purchasing paid-up additions using dividends, which is a less-known method, you can also utilize your personal dollars. This option allows you to pay an extra charge when buying your whole life insurance policy. You accelerate your policy’s cash value growth by depositing more cash into it. Since they are instantly paid up, the rate at which the additions supercharge your cash surrender value is higher compared to a policy with no rider.

What is the Cost of Paid-Up Additions?

Paid-Up Additions charges vary from company to company. Because PUAs lack ongoing premiums, whole life insurance companies first assess a “PUA load” that normally ranges between 5 to 10 percent of the overall premiums paid for PUAs, with the extra 90 to 95 percent remaining to immediately grow within the cash value of your PUAs.

Below is a table showing the cost of paid-up additions as charged by various whole life insurance companies.

Even though consumers like making their decision-making process simple, you should consider the performance story more than just settling on a company because it offers the cheapest PUA load. Ensure you check the review of various whole life insurance companies to find out how they compare.

An Example of Paid-Up Additions

Let’s say at age 40, you purchase a death benefit valued at $300,000 with a yearly base premium worth $5,000. You decide to pay an additional $5,000 into a paid-up additions rider during the first year. Your cash value will increase instantly by $5,000, and an extra $25,000 to your death benefit. A total of $10,000 would be paid into the insurance policy, $5,000 of which would go toward the cash value, resulting in a $325,000 total death benefit. If you continue in this manner, your insurance policy’s value and advantages will gradually increase.

Are Paid-Up Additions Flexible?

There are different types of Paid-Up Additions Riders that you can select from, and one offers greater freedom than the other. These include level paid-up additions riders and flexible paid-up additions riders.

Level Paid-up additions riders

This limits you to a certain number of annual additions you must agree to buy. With some exceptions, this number cannot be changed, although it can be decreased. For some, that rigidity could be problematic.

Flexible paid-up additions riders

In contrast, Flexible Paid-Up Additions Riders offer policy owners a variety of rider funding options to select from and might vary from year to year (depending on the insurance company). Investment advisors may encourage their customers to use a flexible sort of rider because it gives you the power to increase or decrease your budget without relying on the insurance company. Before purchasing a Paid-Up Additions Rider, it is advisable to thoroughly investigate both the Level and the Flexible options to make sure you are getting what you need. Not every company provides the two.

Dividend-paying Paid-Up Additions as well as Riders might be difficult to completely comprehend, you need to carefully consider the benefits and drawbacks before choosing whether or not this is a smart “investment” option for you. You can also get guidance from your financial adviser if necessary. Remember that life insurance was never intended to provide your descendants with an investment return; rather, it was only intended to provide a tax-free death benefit.

For some policyholders, the responsibility of making lifelong premium payments can become overwhelming or expensive. You can incur a monetary loss if you are compelled to give up the policy because you are unable to make the required payments and the cash value has not increased as anticipated. However, whole life insurance policies offer lifetime protection, and under the correct financial conditions, a policy’s debt can be paid off in around ten years. The cash value of your policy can increase over time to the point where you may simply utilize a portion of that cash value, or future dividends, to finance your premium, keeping your policy in operation while no longer spending a dollar from your pocket. Regarding permanent life insurance, information is a powerful tool. Not all plans are made equally, so if you think that a Paid-Up Additions Rider is an essential component of your investment strategy, consult with a skilled life insurance agent for advice.