You may already know that permanent life insurance policies like whole life accumulate cash value. What you may not know is that you can increase that cash value quicker with a Paid Up Additional (PUA) rider.
Life whole life, a PUA rider is a type of guaranteed permanent life insurance you can add to a base whole life policy. A PUA accumulates cash value faster and increases your death benefit more than the base policy alone can. Dividends and guaranteed interest fuel its growth.
How a PUA Works to Enhance Your Whole Life Insurance Cash Value
You contribute funds to the PUA rider to pay off your policy premiums. Once the PUA meets the initial death benefit, the benefit amount continues to grow as part of your base policy.
All life insurance companies require a minimum PUA annual contribution amount. However, some life insurance companies allow you to contribute as much as you wish to accelerate its annual growth; others have an annual cap. And you must purchase the rider at the same time as the whole life policy.
Once you pay off your policy, the PUA dividends continue to compound. You can borrow against your policy to purchase a home or other investment, use the cash value to increase your coverage as you age without medical underwriting, or surrender the accumulated cash value for withdrawal tax-free.
To recap, the biggest benefit a PUA offers is its ability to build additional cash value. It also:
- accelerates the rate at which your whole life policy accumulates cash value
- increases your death benefit
- allows you to control how much you want to contribute and how often; thus, giving you control over growth rate (although there is an annual minimum)
- is guaranteed to grow through compounding dividends and interest
- is less risky than other wealth-building strategies
- eliminates worry about your payment schedule if you elect to have the cash value pay your premiums
Once your accumulated premium payments match your death benefit, you can:
- borrow against your policy to invest in a new home, education, etc.
- increase your whole life coverage without additional medical underwriting
- surrender the cash value you’ve accumulated and withdraw it tax free
A PUA is a rider only. You can’t purchase it as a stand-alone base policy. It must be attached to a whole life policy that pays dividends from the insurance company’s generated profits.
Older purchasers and those with health conditions will pay more and have less time to reap the benefits. That’s because the base policy carrying the PUA rider will start with a lower initial cash value and death benefit.
Despite its downsides, if used wisely, a PUA is an excellent wealth-building vehicle.