If you are considering purchasing life insurance, you may have heard about a rider called the “paid up additions” rider, or PUA. It’s a rider that I personally use, and if your purpose is to accumulate cash value quickly, like we do with the Infinite Banking Concept, this rider can be beneficial. Here’s what you need to know about it.
Defining Paid Up Additions
To be more technical, paid up additions are an immediate purchase of life insurance coverage (death benefit) in full. That paid up insurance then adds cash value equal to the paid up price.
Let me break that down a little bit. Make sure you read the example at the bottom, it will clarify even further.
A purchase of paid up additions is essentially paying for the death benefit, in full, today. Because it is being paid for, in full (hence the name “paid up”), there are no premiums or insurance costs associated. It is fully paid for insurance. This also means that the dollar you used to pay for the insurance are now dollars added to your cash value. Simply put, its money you put into your policy that goes into cash value, and gives you more death benefit.
Paid up additions can be paid for out of pocket, or can be purchased with dividends.
One of the main uses of the paid up additions rider is to add cash value to the policy. This is especially beneficial if you are using life insurance as an investment, and want to accumulate cash value quicker. When you contribute to the paid up additions rider, those dollars ultimately increase cash value and increase death benefit. This can have significant advantages (safe, liquid, tax friendly). Check out our high cash value life insurance resource page for more information on why this can be beneficial, and how to create it.
Flexible vs Non-Flexible
Every insurance company is different. Some have a flexible paid up additions rider, where you can contribute as much or as little as you would like into the rider from year to year. Others are less flexible, and if you do not continue to contribute to the rider at the same levels, you can risk losing the rider and having to reapply for it in the future.
Adding the PUA Rider
To take advantage of the paid up additions rider, it needs to be structured into the policy when you purchase it. Some companies may allow you to add it in the future, but it may be subject to health, age, and other factors.
A Hypothetical Example
A 35 year old purchases a policy with an annual base premium of $4,000 dollars. This premium purchases $200,000 of death benefit.
This individual decides to pay and extra $6,000 into a paid up additions rider in the first year. The paid up additions will give him an immediate cash value of $6,000, and add $30,000 to his death benefit.
He ends up paying $10,000, with $6,000 going to cash value, and a total death benefit of $230,000. If he continues to purchase paid up additions, he will continue to increase his cash value, and his death benefit as time goes on.
Make sure to sign up for our Infinite Banking Info Kit to get more information on how to use the PUA Rider.