Are you thinking about buying a whole life insurance policy and wondering if it makes sense to add a paid-up additions rider? If that sounds like you stick around because we’re going to go over exactly why it may make sense to add that rider to your policy.

First of all, you may be wondering what in the world is a paid-up additions rider.

Quite simply, it’s a rider under the umbrella of a whole-life policy that allows you to put extra cash into the policy. That extra cash buys a paid-up additional life insurance policy. Think of it as a single premium whole-life policy under the umbrella of your whole-life policy.


So basically with this rider, you’re able to build up cash value quickly in the policy and no further premiums are going to be due to support that death benefit.

But how would that benefit you as a whole life insurance policy owner?

The first part of answering that question is that we have to step back and look at what a whole life insurance policy looks like without the paid-up additions rider. And in general, most whole-life policies have zero cash value in the first year, zero cash value in the second year, and very little cash value in the third year. So it’s not really efficient on its own without the help of a paid-up additions rider. That’s mainly due to the fact that the insurance company has to pay for setting up those policies.

There are a lot of expenses behind the scenes that need to be supported, and the insurance company takes care of those expenses upfront before building the cash value in those whole life insurance policies.

It’s a lot like building your own business. In the first few years, you’re not going to see any profits because you need to get that machine working efficiently. By design, a whole life insurance policy becomes very efficient after the fourth or fifth year. From that point forward, it literally gets better and better because, by design, the insurance company has to reserve more money to pay for the second promise, which is to have the face amount of the policy in cash at the age of maturity.

So by adding this paid-up additions rider, especially in the early years, we’re able to build up that cash value more quickly within the policy. You may be saying, “Olivia, I don’t even want to loan against my policy. I just want death benefit for my family, for my whole life.”

And I would make the argument that the paid-up additions rider still makes sense, even if you don’t plan on loaning against your policy. And here’s why.

The paid-up additions rider could give the policy a lot of flexibility down the line. You could think of it as prepaying premiums, in a sense, and that your policy has this extra cash. And if you become in a cash flow pinch down the line and can’t pay your premium, or can’t afford that cash flow to pay the premium, you could take a loan or surrender against that paid-up additions rider to fund those premiums. Your policy then remains in effect and at maximum efficiency.

One thing we’ve learned over 37 years in the financial services business is that life happens and things happen beyond our control that prevents us from being on a straight line and doing the things that we said we were going to do 20 years ago or ten years ago or even two years ago. Because of the paid-up additions rider, you’re literally building in flexibility for future premiums.

The last thing you want to do is five years down the line after this policy has been issued, say, “Hey, I don’t have the money to fund this premium and I’ve already paid all these other premiums. I’m just going to surrender the policy.”

After five years there’s not going to be a lot of cash value in that policy, and you’re going to lose all of the premiums paid and all of that death benefit forever.

And here’s the point.

You know, we had mentioned earlier that the policy becomes very efficient after the fourth year. So think of it this way. Right when the policy is becoming more efficient, let’s say you have a cash flow issue and you can’t make the premium. Having had the paid-up additions rider could give you some premium relief.

But think of it this way, if the policy becomes more efficient after the fifth year and it’s going to get better every year after that, it’s sort of like, the worst time to own the policy is in the first four years. You go through that and now just when it starts to get good, you walk away from it. You don’t want to do that. To walk away from a policy in the fifth year or later is analogous to buying a ticket to a movie, buying your popcorn and your soda, sitting through the previews, and just when they say, “Now for our feature attraction,” you get up and walk away. You would never do that and we would never suggest that you do that with a whole life insurance policy.

If you want to get the most out of your whole life insurance policy, you’re definitely going to want to add a paid-up additions rider of some sort. It acts as a bridge, so it takes these inefficient years and makes them more efficient. And after the policy becomes efficient, you could take off that rider and reduce the cost of the premium. But if you want the flexibility of being able to make more choices down the line and ensure the life of your policy, you’re going to want to add this rider.

If you’d like more advice on this, be sure to check out our website at to get started. We have a button for a free strategy session or a web course on exactly how we use this process to make our clients’ cash flow more efficient.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.