Paid-up additions can be a valuable way to invest your dividends
If your mutual insurer offers the option to use annual dividends to buy extra amounts of whole life insurance, it’s worth considering. Otherwise, we don't typically recommend buying a rider to make paid-up additions. These riders come with a fee, and there’s risk of overfunding your policy and potentially owing taxes.
What are paid-up additions?
Paid-up additions (PUAs) are small amounts of extra coverage you can buy with your life insurance dividends.
Paid-up additions let you increase your policy’s death benefit, which is the payout your beneficiaries receive when you die. You can do this without raising your premiums, because your dividends pay for the coverage in full. The extra coverage can help your life insurance keep up with inflation.
How do paid-up additions work?
Paid-up additions sound complicated, but they’re a fairly straightforward way to buy more life insurance coverage.
Paid-up additions are a perk of whole life insurance
If you have a whole life insurance policy that pays dividends, you may have the option of purchasing paid-up additions.
Mutual companies offer PUAs as a way to use dividends
You’ll need a whole life insurance policy from a mutual company to earn dividends. These companies are owned by policyholders rather than shareholders. Dividends are never guaranteed.
However, many mutual life insurers, like Northwestern Mutual and MassMutual, have a long track record of paying dividends.
Paid-up additions don't require a medical exam
If you use policy dividends to buy paid-up additions, you won’t need to take another medical exam or go through the underwriting process again. The extra coverage you can buy is based on your age at the time the dividend is issued, and doesn’t factor in any health issues you might have developed.
PUAs are small, individual policies
Think of paid-up additions as mini life insurance policies. You buy these small blocks of coverage to add to your base policy, increasing the death benefit and building the cash value.
Paid-up additions have a price tag
Some whole life insurance policies contain a provision that allows the purchase of PUAs out of your own pocket without the use of dividends. You’ll usually need to buy a paid-up additions rider when you buy the whole life insurance policy to have this option.
Whether you buy PUAs with dividends or not, they’re not free. You’ll still be paying for the coverage. The good news is it’s a one-time cost and won’t add to the price of your premium.
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Do paid-up additions help you pay off your policy sooner?
If you’d like to pay off your life insurance policy early, paid-up additions can be part of that picture. But unlike dividends, you can’t directly use paid-up additions to pay your premiums.
Instead, purchasing paid-up additions can add to your policy’s death benefit and grow your cash value more quickly. Once you’ve accumulated enough cash value, you can then use it to pay your policy’s premiums.
If your goal is to pay off your whole life policy quickly, consider using your dividends to reduce your premiums.
Pros and cons of paid-up additions
Using your dividends to buy paid-up additions has both benefits and drawbacks, so consider whether it’s a good fit for your financial needs.
Pros
Increases your coverage without an exam.
Helps grow cash value more quickly.
Cons
Potential tax liability if you overfund your policy.
Can involve a fee or minimum contribution.
🤓Nerdy Tip
If you overpay or frontload your life insurance premiums, the IRS could classify your policy as a modified endowment contract (MEC). This means the IRS would tax any cash value withdrawals from the policy as income. Speak to a tax professional to better understand how to avoid this as you use paid-up additions.» MORE: Is life insurance taxable?
Are paid-up additions worth it?
Whole life insurance is expensive compared to term life insurance. Buying more coverage than you need isn’t always a financially smart move. However, whole life insurance policyholders might find paid-up additions helpful in some situations.
You need more coverage and don’t want a medical exam
If your circumstances have changed and you need more life insurance, paid-up additions could help. This strategy can be especially convenient if you’ve developed health conditions or prefer not to take a medical exam.
You want to build cash value more quickly
Cash value in whole life insurance grows slowly. In some cases, it can take up to a decade to build enough to borrow against. If you plan to use whole life insurance as a secondary source of income, investing your dividends into buying paid-up additions could speed things up.
» MORE: Best whole life insurance
Alternatives to paid-up additions in life insurance
If you’re shopping for a policy and want the flexibility to increase your death benefit, there are ways to do so without a paid-up additions rider.
- A cost-of-living rider (COLA) lets you purchase extra life insurance to keep up with inflation.
- A guaranteed insurability rider lets you buy more life insurance coverage at specified times.
- A term life insurance rider allows you to add an extra amount of term insurance to a permanent policy for a certain period of time.
» MORE: Life insurance riders
Other ways to use your life insurance dividends
If you don’t want or need more coverage, you might want to use your dividends in different ways.
- Receive the dividend payment as cash. You can ask your life insurer to cut you a check and use the money in whatever way you’d like.
- Use it to reduce your life insurance premiums. You can pay your dividends forward and use them to reduce the cost of your premiums over the course of the year.
- Pay down outstanding policy loans. If you borrowed against the cash value of your policy, you can use dividends to pay down the loan amount or the loan’s interest.
Article sources
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- 1.Northwestern Mutual. Northwestern Mutual Expects Record-Breaking $9.2B Dividend Payout in 2026. Accessed Aug 17, 2026.
- 2.MassMutual. MassMutual to Pay Record $2.9 Billion in Policyowner Dividends in 2026. Accessed Aug 17, 2026.
