Paid-Up Additional Insurance
Since insurance companies are business entities, these consists of numerous important variables in order to check if the company is growing at its best state through expansion and profits gained while making sure that its clients, as the consumer, are also getting its benefits equal to the premiums paid.
Insurance companies own the policyholders money, thus they pay the insured through dividends in a yearly basis. This dividend may be used by the by the policyholder to purchase more insurance which will lead to an increase in the size of the contract thus giving the insured a bigger share of dividend or use the dividend to reduce the premium rates of the policy. This is what we called, the Paid-up additional Insurance.
Paid- up additional insurance is also referred to the option of the policyholder to use the dividends or the additional premiums to purchase an additional insurance within the same plan having the amount determine through the attained age of the insured.
If you try to understand it literally, it denotes that the insurance is being paid up already that you don’t have to pay any premiums at all. But in the insurance industry, it tends to give a twist towards its definition. In some financial institutions, as the company profits, it shares its profits to its shareholders by means of a dividend. Unlike insurance, the dividend actually means that you, as the policyholder have paid excessively on the premium so the company will refund you with that extra amount. This would mean that you have established a cash value enough to pay for the premiums for awhile. This means that the company can pay the premiums for awhile by your dividend or the accumulated cash value, thus you don’t have to worry at all for the mean time. On the other hand, if you have the dividend, you can also purchase an additional insurance that you think is valuable and significant enough for you to be added in the plan that you currently have.
For instance, Andrew bought a $150,000 of a life insurance policy from a Met Life Agent. The policy illustration indicated the various variables of the policy as well as the calculation of the policy for the past few years. It also showed that for the mean time, a span of 12-13 years after, that Andrew will not pay any premiums since the dividends are used to pay for the premiums. Or it’s going to be Andrew’s choice if he will purchase an additional insurance that will provide an additional coverage of the same plan. Thus Andrew has also been benefited from the investment.
Nevertheless, a paid-up additional insurance is also geared towards providing the policyholder a benefit of getting an extra insurance to a those potential damages that one may encounter of the same plan. As what the famous quote says ‘Prevention is better than Cure”. Additional insurance may not be a bad move at all.