In this blog we are going over the two types of paid-up additions riders. Paid-up additions riders can be either flexible or level.
A flexible paid-up additions rider allows the policy owner to increase or decrease the contributions to the paid-up additions rider within a range specified at policy issue. The policy owner is free to make these adjustments at any time during any payment period of the policy.
The advantage of the flexible paid-up additions rider is that it takes care of a common concern for people committing high premium payments to a whole life insurance policy. For example, some policy owners might be able to afford $80,000 a year in premiums for their whole life policy of which $20,000 go the base whole life and $60,000 go the flexible paid-up additions rider. If their financial situation temporarily deteriorates, they can reduce the $60,000 going to the flexible paid-up additions rider to weather their financial storm without having to give up the entire policy. When the financial situation improves, the policy owner can go back to paying the $60,000 premium for the flexible paid-up additions rider.
The level paid-up additions rider does not provide the same flexibility to adjust the premium going towards it. The level paid-up additions rider assumes that the policy owner will pay the same amount year-over-year towards the rider. If the policy owner reduces the premium going to this rider, that reduction can become permanent. Some insurance companies may allow the policy owner to increase the premium going to the level paid-up additions rider after a reduction if that increase is approved through medical underwriting.
The flexible paid-up additions rider is most often preferred over the level paid-up additions rider. This due to the options that the flexible paid-up additions rider creates for the policy owner. There are, nevertheless, situations where the level paid-up additions rider works just fine. It may be situations where the policy owner has very stable income or where someone is seeking to move a large sum of money into the whole life policy during a fixed period of years.
Look out for our next blogs as we continue to deal with the very important concept of paid-up additions.
Remember, we are always available to advise you on the best way to utilize your IBC policy.
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Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners
We are experts in designing high cash value dividend-paying whole life policies.