Are Paid up Additions Taxable?

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Are Paid up Additions Taxable?

Did you know that out of those with life insurance, 1 in 5 say they don’t have enough? Life insurance policies can be tricky to understand, but if you want to increase your cash value, paid up additions may be the right move for you. Dividends are another option that is taxable, but are paid up additions?

Read on to learn the answer to, “are paid up additions taxable?”

What Are Paid up Additions?

A rider gets added to a life insurance policy in which paid up additions (PUA) are available. A paid up additions rider means that the owner of the policy can buy more pair-up insurance. This is for those who are looking at cash value life insurance or whole life insurance.

If you want to increase cash value performance within your insurance policy, you use a PUA rider to put in additional money. Every premium dollar for the paid up additions creates a policy that immediately creates cash value.

So, are paid-up additions taxable? The cash value increases significantly because these policies are not taxable.

There are different paid up additions to choose from depending on the insurance company you use. This option is valuable for value accumulation at interest. The main thing you need to know about these policies are as follows:

The Dividend Option

Many policyholders have paid up additions, but don’t know it. A common dividend option for whole life policies is purchasing paid-up additions.

For a lot of insurers, this will be the default option. It is important to note that dividends are taxable while paid-up additions are not.

PUA Rider

If paid up additions are not the dividend option, they are a rider. This is when the policyholder chooses to add PUA to their policy. With a rider, a policyholder must use external money to purchase additions.

Immediate Cash Value

Many wonder the difference between an insurance paid-up policy vs. surrender policies. A paid-up policy provides immediate cash value in the form of a policy loan or they can surrender the paid-up addition to receive the cash value as a withdrawal.

A good way to decide between the two options is to get a reduced paid-up insurance calculation. Before doing a calculation, be sure to note if you have a one-year term or option extended term.

Death Benefit

A paid-up addition makes an immediate death benefit. Depending on how much gets put into the purchase of the paid-up addition, you should receive more in return.

The death benefit is paid up immediately and needs no extra payments to remain active. These additions are often thought of as smaller whole life policies attached to a larger policy.

Are Paid up Additions Taxable?

The short answer to “are paid up additions taxable?” is no. However, there is a lot more that goes into these policies than taxes. By understanding this guide, you can decide whether or not a paid up additions policy is the right additive to your whole life policy.

There’s a lot to learn about insurance policies and other financial concepts. Our blog has more to offer so keep coming back for posts like this.

Andrew Williams

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