Quick answer: Paid up additions, often called PUAs, are small amounts of extra whole life insurance that are fully paid for the moment you buy them. In a whole life policy, you can often buy them with dividends or, if your policy has a paid up additions rider, with extra premium dollars. Each addition has its own cash value and death benefit, and it does not need more premiums later. Many people who use the infinite banking idea, also called Own Your Bank, look at PUAs as a way to build cash value faster.
We talk with a lot of people about infinite banking, and paid up additions come up all the time. Here is what they are, in plain English. This is education only, not financial, tax, or legal advice. Every policy and company is different.
What Does “Paid Up” Mean?
“Paid up” means nothing more is owed. A paid up addition is a small piece of whole life insurance that is paid in full with one payment. You never pay another premium on that piece. It stays in force as part of your policy.
How Do You Get Paid Up Additions?
There are two common ways:
1. Dividends
Some whole life policies, often from mutual insurance companies, may pay dividends. Dividends are not guaranteed. If your policy pays a dividend, one option is often to use it to buy paid up additions. Other options can include taking it as cash, lowering your premium, or leaving it on deposit.
2. A Paid Up Additions Rider
A rider is an add on to a policy. A PUA rider lets you pay extra money, above your base premium, to buy paid up additions. Each company sets its own rules for how much you can add and when.
What Do Paid Up Additions Do?
Each paid up addition:
- Adds to your death benefit.
- Has its own cash value.
- May earn dividends of its own, if the policy pays dividends.
Over time, those small additions can add up.
Why Do People Talk About PUAs for Infinite Banking?
In the infinite banking idea, people use the cash value of a whole life policy as a pool of money they can borrow against with a policy loan. Because PUAs add cash value, some people design their policies to use a PUA rider so more of their money goes toward cash value early on. How much this helps depends on the policy design, the company, and the person’s goals.
For a look at the borrowing side, see our post on how a policy loan works.
Base Premium vs PUA Premium
| Base Premium | PUA Rider Premium | |
|---|---|---|
| What it pays for | The core whole life policy | Extra paid up additions |
| Usually required? | Yes, to keep the policy in force | Usually flexible, within the rider rules |
| Effect on cash value | Builds cash value over time | Can add cash value faster |
Ask the insurance company or a licensed agent how your policy’s rider works.
Things to Know Before You Count on PUAs
- Rules vary. Each company sets limits on PUA payments.
- Skipping payments. Some riders may limit or end your ability to add later if you skip payments. Ask.
- Tax rules. Paying too much into a policy too fast can change how it is taxed. Ask a tax professional and your insurance company about this.
- Dividends are not guaranteed.
- Read your policy. Your contract is what counts.
Questions to Ask About Paid Up Additions
- Does my policy have a paid up additions rider?
- How much can I put in each year?
- What happens if I skip a PUA payment?
- Does my policy pay dividends, and how are they used now?
- How do PUAs affect my cash value and death benefit?
Learn More With Us
I am a licensed life and health insurance agent, and we spend a lot of time learning about infinite banking. Read more on our insurance and infinite banking page and our insurance and Own Your Bank guide. If you want to learn with a group, join our free Cash Flow Association community on Skool at skool.com/cashflowassociation.
Keep Reading on This Site
- Insurance and Infinite Banking
- Insurance and Own Your Bank Guide
- Cash Flow Association
- Inside the Cash Flow Association
- Real Estate
Frequently Asked Questions
What are paid up additions?
They are small amounts of extra whole life insurance that are fully paid for with one payment and add both cash value and death benefit.
How do you buy paid up additions?
Often with policy dividends, or with extra premium through a paid up additions rider, depending on the policy.
Are paid up additions guaranteed?
Once purchased, an addition is part of the policy, but dividends used to buy them are not guaranteed. Check your contract.
Why are paid up additions used for infinite banking?
Because they can add cash value, which can be borrowed against with a policy loan.