Glossary
Paid-up additions, defined
Small blocks of extra permanent coverage bought inside a participating whole life policy with dividends or with extra premium, each block fully purchased at the moment it is bought and never requiring another payment. Each block carries its own cash value and earns its own dividends, so the policy compounds.
In practice
Using dividends this way is the default choice on many participating policies and the one that grows the death benefit and cash value fastest. A rider allows the owner to buy more with cash, within limits the carrier sets to keep the policy from becoming a modified endowment contract. The additions can be surrendered separately for their cash value without touching the base policy, which makes them a flexible reserve. Their cost per unit of coverage rises with the insured's age, and the growth is only as good as the carrier's dividend scale, which is not promised.
A worked example
Suppose a whole life policy with a $250,000 face amount pays a $1,200 dividend in a given year and the owner directs it into additions. That buys, say, $3,000 of extra fully paid coverage, raising the death benefit to $253,000, and the addition has its own cash value from day one. Over decades the additions can add a meaningful layer to both figures. Hypothetical figures.
Applies to: Life Insurance