How to Capitalize On Paid-Up Additions Rider In Whole Life Insurance

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Life insurance companies have been working hard to bring valuable and relevant life insurance products to the market – and they’ve succeeded! That’s why you will most likely hear your insurance agent explaining the components, benefits, and downsides of each type of insurance.

You’ll find yourself thinking about cash value, death benefit, policy loan, premium payments, living benefits, annual dividend, payout, etc. – you know that the list is endless. Besides these usual insurance terms we’re all used to, you’ve probably heard of the new most important – life insurance rider.

Every policy owner — especially those owning a Whole Life Insurance policy — has been talking about Paid-Up Additions Rider, also known as PUA Rider – or simply PUAR. There is a reason this topic became so popular amongst the policyholders – this is the rider that uses the policy’s cash value for wealth building.

We’re going to help you understand a Paid-Up Additions Rider and how to capitalize on it using your Whole Life Insurance. You will learn:

  • What is Paid-Up Additions Rider?
  • How does Paid-Up Additions Rider work?
  • What are the benefits of Paid-Up Additions Rider?
  • What are the potential downsides of Paid-Up Additions Rider?
  • How is Paid-Up Additions Rider connected to Whole Life Insurance?
  • How to use Paid-Up Additions Rider to Become Your Own Bank?

By the time you finish reading this article, you will have answers to all of the questions from above, and you’ll be ready to make the best decision for yourself and your loved ones!

What is Paid-Up Additions Rider?

The Paid-Up Additions Rider (PUAR) is an additional insurance feature available to all insurers owning a whole life insurance policy. They are often referred to as Paid-Up Additional Insurance or Paid-Up Life Insurance.

There might be different names, but they all have the same meaning – additional insurance features you can add to your life insurance policy to increase the benefits and protection.

There are different types of Life Insurance Riders available according to your needs. You can look for Guaranteed Insurability Rider, Terminal Illness Rider/Accelerated Death Benefit Rider, Chronic Illness Rider, Same-Insured Term Rider/Flexible Protection Rider, Long-Term Care Rider, and many more. We believe that the Paid-Up Additions Rider is the most valuable one when owning cash value life insurance, and we will explain why.

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Paid-Up Additions Rider Explained

The Paid-Up Additions Rider is the insurance feature used to place additional money into a participating whole life insurance policy to increase policy cash value performance. That means that every dollar of premium allocated to the paid-up additions rider creates a small paid-up insurance policy that has its very own cash value that is made immediately.

As a result, policy owners with a portion of their funds allocated to paid-up additions will outperform those who don’t add paid-up additions rider to their life insurance policy. If cash value growth is one of your goals, paid-up additions rider is an excellent strategy to get there.

Having a Paid-Up Additions Rider as a part of your policy will consistently add immediate cash value to your policy. You could choose from different options – putting your money into policy, having that money accrue dividends, or borrowing money against your policy.

Based on your needs and goals, you can choose to pay more money into a paid-up additions rider or the base premium. This decision will influence how long the process of cash value accumulation takes, resulting in how soon you will be able to borrow against your policy.

There is one catch – you should be careful as there is a limit on the amount of money you can put into your policy. An over-funded policy transforms the policy into a modified endowment contract MEC. If it turns into MEC, you will lose tax-free advantages that come with a life insurance policy.

Dividend options

Owning a whole life insurance policy could mean owning a dividend-paying policy. The most used dividend option for whole life insurance policies is the option of purchasing paid-up additions. In other words, if you own a whole life insurance policy, you can expect your insurance company to use the earned dividends to buy the additions for you as a policyholder.

The dividend option to purchase paid-up additions rider is the default option with most insurance companies. If a policy owner does not choose a different option, the insurer will automatically proceed with this dividend option.

Purchasing Paid-Up Additions Rider

Besides having a Paid-Up Additions Rider as a dividend option, it can be explicitly bought as a rider. There is a difference compared with a dividend option, as now the policyholder is using external funds to purchase the additions. This money is not the same as the dividend earned on the whole life insurance policy.

You can choose to purchase Paid-Up Additions Rider with your dividends and buy Paid-Up Additions Rider directly with additional funds allocated to contribute to the policy at the same time.

Immediate Cash Value

If you buy PUAR in addition to purchasing a whole life insurance policy, the paid-up additions will create immediate cash value. The same rules and possibilities apply to Immediate cash value as they apply to the regular one. There is an additional option to surrender the paid-up addition and receive its cash value. This option is also known as withdrawing money from a whole life insurance policy.

Every dollar used to buy a paid-up addition creates a dollar of cash value (minus any fees associated with the paid-up additions). This ensures much faster cash value growth, which is a crucial component of PUAR.

Immediate Death Benefit

Paid-Up Additions Rider will create the immediate death benefit by multiplying the dollars used to purchase the paid-up addition. In other words, every dollar used to purchase a paid-up additions rider could create multiple dollars in death benefit.

The Death Benefit is immediately paid up, and no additional payments are required to stay in force. Suppose you perceive the Paid-Up Additions Rider as a miniature paid-up whole life insurance policy attached to a larger whole life insurance policy. In that case, the Paid-Up Additions Rider feature will contribute to and grow the overall death benefit of a whole life insurance policy. Over the life of the policy, the policy’s death benefit will increase larger than initially purchased.

The amount of death benefit growth through every paid-up addition rider purchase is calculated based on the insured’s age. As the insured grows older, the multiple death benefit created per dollar lowers.

Earning Dividends

We already covered a dividend option as a way of Paid-Up Additions Rider Purchase. Another thing you should bear in mind is that Paid-Up Additions can be perceived as miniature paid-up whole life policies. Since these policies are participating policies, you as a policyholder can earn dividends through them.

Since Paid-Up Additions earn dividends, a compounding effect is created by the constant purchase of Paid-Up Additions Riders. The more riders you purchase, the more dividends you make. This once again allows you to grow cash value quickly.


When purchasing Paid-Up Additions Riders, you can expect to pay a one-time fee assessed at purchase. The insurance companies determine the fee as a percentage of the purchase amount, like a load fee assessed against a mutual fund. There are no additional fees you are required to pay.

The fee is defined by the insurance companies and depends mainly on how you’ve purchased your Paid-Up Additions Rider (through a dividend or directly as a rider). Fees can (and usually do) differ depending on the way policyholders purchase paid-up additions, so bear in mind to check this with your insurance agent.

The Variety of Paid-Up Additions Rider

Even though the paid-up additions riders have a clear purpose and way of functioning, there are still differences defined by the insurance companies. For starters, you’ll learn that there are different names for Paid-Up Additions Riders: additional premium rider, additional paid-up insurance rider, optional permanent protection, enricher rider, and supplemental insurance rider, etc.

They have the same function, but insurance companies will probably offer you a variety of their functionalities. Some insurers differentiate between a lump sum and scheduled paid-up additions rider. The former allows a single payment around the outset of the policy, while the latter permits ongoing payments several years into the future.

There is also a difference when it comes to the payments – you’ll might be required to pay the specific amount each year, or your insurer might offer you a degree of flexibility in the exact payment of the paid-up additions rider.

We already mentioned the limit on the amount of money put in the policy, and the insurance company can define this amount. It can be a fixed amount or multiple bases, such as the base whole life premium on the policy.

What are the benefits of Paid-Up Additions Rider?

As you’ve read about different components of Paid-Up Additions Rider, you’ve probably noticed the benefits arising from them. We’ll go through the most significant benefits that could make a change in the quality of your life.

Cash Value Growth

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“The image above is not drawn to exact scale but conceptually represents how stacking Paid-Up Additional life insurance on top of a Whole Life policy increases the death benefit and the trajectory of the guaranteed cash value’s growth curve.”

When choosing a life insurance policy, it’s essential to consider life insurance coverage, additional coverage, annual premium, etc. Bear in mind that it is critical not to forget to check the cash value growth potential.

As a Paid-Up Additions Rider acts as a mini whole life insurance policy, the money you put into the Paid-Up Additions Rider (minus the fee) goes to your cash value. Over time, the cash value is accumulated, and it grows more rapidly.

The more money you put into your Paid-Up Additions Rider, the more money will be allocated into the cash value, making it grow more quickly. This will result in you — as a policy owner — being able to access your funds earlier by withdrawing money or borrowing against your policy.

Death Benefit Growth

As a Paid-Up Additions Rider acts as a mini whole life insurance policy, every dollar used to purchase a Paid-Up Additions Rider is also used to create multiple death benefits. This means that a Paid-Up Additions Rider can be an excellent strategy to grow the death benefit over the years. Bear in mind that the volume of the multiple death benefit depends on how old you are once you purchase the Paid-Up Additions Rider. The Paid-Up Additions Rider allows you to grow your death benefit much higher than it would be with a whole life insurance policy.

Money Withdrawl

If you at any time find yourself lacking the money, Paid-Up Additions Rider offers the solution. As you grow your cash value by purchasing paid-up additions rider, you get a chance to surrender the paid-up addition and receive its cash value. The cash surrender value could be more than a valuable source of income, especially in times of financial crisis.

An increased cut of future dividend pools

Whole Life Insurance pays dividends to the policy owners is a significant benefit when choosing a life insurance policy. It is possible since its policyholders own a mutual insurance company.

An important thing for you to know is that your cut of a mutual insurance company’s dividend pool depends on both the amount of your cash value you have inside the policy as well as the amount of your permanent death benefit your Whole Life policy supports (including Paid-Up Additional life insurance).

Owning Paid-Up Additions rider increases both your cash value and permanent death benefit, resulting in an increased cut of any future dividend pools. You probably understand how big a compound effect could be created here, significantly if you maximize your Paid-Up Additions payments.

Tax Advantages

Paid-Up Additions Riders are not taxable. This means that the cash value growth is tax-deferred, and the death benefit is tax-free. Bear in mind that the requirement for this is that the Paid-Up Addition is added to the existing base policy. If not, the policy will turn into a Modified Endowment Contract (MEC) and lose tax advantages.

Suppose you have Paid-Up Additions Rider as an addition to the base whole life insurance policy. In that case, all the withdrawals up to your premium basis plus any loans will remain tax-exempt as long as you leave some small amount of your whole life policy as a death benefit.

What are the potential downsides of Paid-Up Additions Rider?

There are always two sides to the coin – this case included. However, there is only one setback we were able to identify. Here is the thing you should be aware of.


Nothing in life comes free! Paid-Up Additions Riders are not free, as there is a fee to be paid if you want to enjoy all of the benefits that come with it.

Whenever you purchase the Paid-Up Additions Rider, you are required to pay the fee. The percentage of the fee depends on the insurance company. It usually ranges from 4% to 9%. Some insurance companies charge up to 20%, so make sure to check this information before making any purchase.

How is Paid-Up Additions Rider connected to Whole Life Insurance?

So far, you probably have noticed that whenever we mentioned a life insurance policy, we were talking about whole life insurance. Paid-Up Additions Riders are available to policyholders of whole life insurance. This means that the policy owners of other insurance products such as term life insurance, universal life insurance, etc., would need to purchase whole life insurance to benefit from Paid-Up Additions Rider.

Whole Life Insurance

Whole Life Insurance is a type of cash value insurance, which means that it allows you to grow cash value over time while ensuring that you and your loved ones are insured for your entire life.

Once you purchase the whole life insurance policy, you buy permanent insurance, which means that you are insured your entire life as long as you pay your premiums regularly. This is important because this is one of the main differences and advantages of whole life insurance.

Whole life insurance works with fixed premiums — meaning that you would be contracted to pay the same amount of money monthly/yearly for as long as you live, no matter the state of the market or your age number.

Permanent coverage equals guaranteed death benefit no matter at what age you die. Once again, the only requirement to be met is to pay your premiums regularly, and your death benefit is guaranteed.

Infinite Banking

Owning a whole life insurance policy is the first step in implementing infinite banking that could help you secure retirement income and bring you additional benefits. Here are the most important things you should know about Whole Life Insurance and Infinite Banking.

The concept of infinite banking is about strategically using your whole life insurance policy from a mutual insurance company as a personal endless banking system. In other words, Infinite Banking is essentially being your own banker.

One of the many benefits of a whole life insurance policy is that policyholders can borrow money using their policy’s cash value. Using this borrowing setup, you would never have to borrow money from a bank again and instead would borrow for yourself (your whole life insurance policy) and pay yourself back over time. Thus, being your own bank.

The goal of Infinite banking is to duplicate the process as much as possible to build the value of your own bank. The duplication process happens by lending and repayment of money typically held in the cash value of a permanent life insurance policy.

Infinite banking allows you to better work towards your individual and unique financial goals for yourself and your family and have control over your finances without dealing with banking fees or interest rates on loans.

Infinite Banking involves:

  1. Overfunding (with after-tax funds) a high cash value whole life insurance policy from a life insurance company
  2. Accumulation of Cash Value(tax-free) throughout the years you are a policyholder of your Whole Life insurance policy
  3. Tax-Free Loans taken out against your whole life insurance policy’s cash value to use for your financial expenses.

The way infinite banking works allows you to mimic the way a bank operates and borrows money.

Instead of borrowing from a bank, you borrow from yourself while still allowing your whole life insurance policy to earn dividends (money) even though you are using that money elsewhere.

Whether it be for your child’s education, a downpayment on the house, or medical expenses, borrowing for yourself and being your own bank allows you the financial freedom and control of your money.

Entering the Banking Business gives you much better control over your finances and helps you build wealth using the life insurance policy.

Using Paid-Up Additions Rider when Becoming Your Own Bank

If you are ready to explore the concept of Infinite Banking, you should know that Infinite Banking goes perfectly with Paid-Up Additions Rider. It goes so well that it is often called The “Supercharger” Rider.

Paid-Up Additions Rider allows you to get more money in less time in your cash value so that it can grow more quickly. This will allow you to borrow the funds against your policy or use them to invest in other assets in a shorter waiting period.

An additional benefit is that this combination builds a great tax-favored environment for your money, which also offers creditor protection depending on your state of residence.

If you use Paid-Up Additions Rider strategically, you will be able to use the cash flow from the additional assets to repay your policy loan with interest. All thanks to the whole life insurance policy, infinite banking, and “Supercharger” Rider.

Final thoughts

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We hope that we helped you better understand how to capitalize on Paid-Up Additions Rider in Whole Life Insurance. Even better – we hope that we brought you a new perspective about Whole Life Insurance and Infinite Banking.

If you would like to keep learning more about Whole Life Insurance and improve your finances, you can sign up for our premium membership. We are looking forward to seeing you at the Wealth Nation community!