Paid up additional riders are a form of additional insurance that you can purchase as part of your permanent life insurance policy. You purchase the riders with your policy dividends.
This rider allows you as the policyholder to increase your living benefit in conjunction with your death benefit by increasing the cash value that your permanent life insurance policy has.
The paid-up additions can also earn dividends and that value will compound with time. As the policyholder, you can surrender the paid up additions and take them out as cash or take a loan out against them.
What Does The Paid Up Additions Rider Do?
The cash value of your paid-up benefit will increase with time in a tax-deferred fashion. Another benefit to this type of feature is that as a policyholder you can use the feature to increase your coverage without having to undergo another set of medical test.
Medical underwriting can increase the cost you pay and the covered you are afforded but if you can circumvent that, you get to maintain additional coverage under the auspices that your health is the same category as it was when you first took out your policy.
This is very convenient and incredibly valuable especially if you are an older or your health has declined since you were originally issued your policy so you wouldn’t be able to increase your coverage in any other fashion.
Again, without having to face additional medical underwriting you can get extra coverage with the same price as your original coverage rather than a higher price based on your current age. There are certain policies that have no premiums for this type of feature, specifically those which are issued by the Veterans Administration.
If you were to compare two otherwise identical permanent life insurance policy with the same premium, but one with the paid-up benefit and one without, the one with the benefit would have a higher guaranteed net cash value within a few years.
If the policy allows for paid-up benefits it might initially have a lower cash value in a lower death benefit but after a few years, those death benefits will even out comparatively and then lean in favor of the policy with the paid up additional Insurance feature.
Who Is Eligible For It?
Anyone who is considering a permanent life insurance policy with a mutual insurance company, and is able to afford the regular contributions that said company might have in place is eligible for this rider, assuming the life insurance company offers it.
Adding this feature is something you want to consider before you take out your life insurance policy. This has to be structured into your policy before you buy it. There are a few companies that might allow you to add it later but declining health, advanced age, and other factors could inhibit that.
Only member-owned Mutual insurance companies can issue dividends. These Dividends are not guaranteed but they are typically issued annually especially if the company does well financially. There are certain insurance companies that have a much longer history of annual dividend payments that are essentially guaranteed.
If you as the policyholder do not want to use your dividends to buy additional insurance with this feature you can always use them to reduce your premium instead.
Who Is It Best For?
This type of rider is best suited for someone who plans to use their whole life insurance policy as an investment tool. More specifically it is ideally suited for policyholders who want to contribute regularly to their policy by increasing the potential gains associated with the dividends.
Naturally, it is in your best interest to evaluate the life insurance companies you are planning to use and make sure that they have a stable history of paying out dividends.
This is not a feature designed for any Term Policy holders or people who don’t have extra money to invest in their policy on a regular basis. Be cognizant of the fact that some companies as mentioned may have minimums that you have to contribute and if you fail to do that a policy could lapse leaving you without coverage.
What Are The Pros And Cons Of The Paid Up Additions Rider?
1. Contributions of Your Death Benefit to Charity
Policies that have the paid up additional feature will vary from one insurance company to another. There are differences in terms of the flexibility.
For some companies, this feature allows you to contribute as much as you want from one year to another or as little as you want.
Other companies stipulate that your contributions has to remain consistent otherwise you risk losing the feature. If the feature is lost you might be forced to reapply in the future.
1. Often Built into Policies
If you are considering this feature again remember that it more often than not has to be built into your base policy so it is something that you need to have from the very beginning.
It is also only something you can have with a whole life insurance policy.
The biggest cost consideration is going to be how much money you want to contribute on a regular basis.
How Much Does The Paid Up Additions Rider Cost?
The cost is going to vary from one company to another. The biggest cost factor is going to be the amount of money you contribute to the paid up rider. For example: As a 45 year old male, you might purchase a life insurance policy that affords you $100,000 in death benefits, for $2,000 per year.
You can opt to contribute whatever amount is required by your life insurance company (assuming they have a minimum).
If you paid an extra $3,000 to your rider, that addition would give you an immediate cash value of $3,000 and then add $15,000 to your total death benefit. If you continue to contribute to this feature you would increase your path value and death benefit each time you did.
Best Life Insurance Companies For The Paid Up Additions Rider
|Company||A.M. Best Rating|
|Ameritas (FLX Living Benefits Products)||A+|