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💎 '''Paid-up addition''' is a small increment of fully [[Definition:Paid-up insurance | paid-up]] [[Definition:Whole life insurance | whole life insurance]] purchased inside an existing [[Definition:Life insurance | life insurance]] policy, typically funded by [[Definition:Dividend | policy dividends]] or voluntary additional [[Definition:Premium | premium]] payments. Each paid-up addition immediately increases the policy's [[Definition:Death benefit | death benefit]] and [[Definition:Cash value | cash value]] without requiring any further premium payments to sustain it. In participating whole life contracts, paid-up additions are one of the most popular [[Definition:Dividend option | dividend options]] because they allow the policy to compound in value over time.

⚙️ When a policyholder's annual dividend is applied to purchase a paid-up addition, the insurer calculates the amount of additional permanent coverage that the dividend can buy at the [[Definition:Insured | insured's]] current [[Definition:Attained age | attained age]], using net [[Definition:Premium rate | premium rates]] without sales loads. The newly purchased increment is itself a participating piece of whole life insurance, meaning it earns its own dividends in subsequent years — creating a compounding effect often referred to as "dividends buying dividends." Some policies also feature a paid-up additions [[Definition:Rider | rider]] that permits the owner to contribute extra cash above the base premium specifically earmarked for purchasing additional paid-up coverage, subject to [[Definition:Modified endowment contract (MEC) | MEC]] testing limits under the Internal Revenue Code.

📈 Over a multi-decade holding period, paid-up additions can substantially outpace the original base policy in terms of both [[Definition:Cash value | cash value]] accumulation and [[Definition:Death benefit | death benefit]] growth, making them a cornerstone of cash-value-focused whole life strategies. Financial advisors and [[Definition:Insurance broker | brokers]] who specialize in permanent life insurance often structure policies to maximize the paid-up additions rider while keeping the base premium as low as possible — an approach sometimes called "minimum non-MEC" design. For the issuing carrier, paid-up additions generate investable assets but also create long-duration [[Definition:Policy reserve | reserve]] liabilities, so [[Definition:Actuarial analysis | actuarial]] teams must carefully model persistency and [[Definition:Mortality | mortality]] assumptions to ensure profitability across the block.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Paid-up insurance]]
* [[Definition:Whole life insurance]]
* [[Definition:Dividend option]]
* [[Definition:Cash value]]
* [[Definition:Modified endowment contract (MEC)]]
* [[Definition:Death benefit]]
{{Div col end}}

Definition:Paid-up addition - Revision history

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