Because no two situations are exactly the same, there can be any number of reasons why someone might choose to purchase life insurance. The proceeds from a life insurance policy – which is received free of income taxation by the beneficiary – may be used for paying off debt, the continuation of ongoing expenses, and/or for the payment of estate tax obligations.
While there are many different types of life insurance to choose from, sometimes a policy will require just a bit more “customization” in order to best fit the anticipated needs of the policy owner and/or his or her survivors. In these cases, there are policy riders.
What is a Life Insurance Rider?
Because most standard insurance policies will typically leave very little room for customization in and of themselves, it may be necessary to add a policy rider (or in some cases, more than one rider).
In their most basic sense, a life insurance policy rider is an option that allows you to add or limit coverage. In some cases, a rider may be included at no additional cost, while in other instances, there is an additional premium charge.
Types of Life Insurance Riders Available
There are many different life insurance riders that may be added to a policy. Just some of these include the following:
Term Conversion Rider
With a term life insurance policy, the coverage will typically only remain in force for a certain number of years, such as ten, twenty, or thirty. This means that coverage will end – and when it does, the insured may still need it. With a term conversion rider, the policyholder is allowed to convert a term life insurance policy over into a permanent policy – and in many cases, this can be done by the insured without him or her having to prove evidence of insurability or having to take a medical exam. This can help an insured to lock in coverage for the remainder of their lifetime (provided that the premium is paid).
Disability Income Rider
With a disability income rider, the insured can collect a regular income from the insurance company if he or she becomes disabled and is not able to work and earn an income. The policy will specify the amount of the income to be received, as well as whether the income will be paid out for a certain amount or time, or rather for the entire length of the individual’s disability.
Waiver of Premium Rider
With a waiver of premium rider, you will not have to pay the life insurance policy’s premium if you become disabled and you are not able to work. This waiver will often expire when the insured turns age 60 or 65.
Guaranteed Insurability Rider
A guaranteed insurability rider allows you to purchase additional life insurance coverage in the future without having to undergo a medical examination, or even having to provide any evidence of your insurability.
Accelerated Death Benefit Rider
With an accelerated death benefit rider, you can obtain some – or even all – of the policy’s death benefit if you become terminally ill and only have a short-anticipated life expectancy – typically one year or less. The proceeds that you receive may be used for anything that you choose. It is important to note, though, that the amount you use while alive will be deducted from the amount of death benefit that is paid out to the policy’s beneficiary.
Child Protection Rider
Although no one ever likes to think about the loss of a child, the reality is that unexpected accidents and illnesses can and do occur. In this case, while the death of a child will not usually result in loss of income for parents or other loved ones, it could still come with various financial hardships – such as the payment of a funeral and other final expenses (which today can exceed $10,000). With a child protection rider, benefits can be used for such needs. In most cases, to add this rider to a policy, the insurance company will need information about the child’s health.
Return of Premium Rider
Some term life insurance policies will offer a return of premium rider. With this rider, if the insured lives through to the end of the policy’s term, then he or she can receive back all of the premiums that they paid in.
Critical Illness Rider
A critical illness rider will allow the insured to be paid a lump sum of cash if he or she is diagnosed with a qualifying critical illness. These may include cancer, kidney failure, stroke, or cancer. Instead of simply reimbursing the insured for their medical expenses (similar to a health insurance policy), this rider will simply provide cash funds to be used for any purpose by the insured.
Accidental Death Benefit Rider
If the insured has an accidental death benefit rider, and he or she dies as the result of a covered accident, then the insurance policy will pay out an additional amount (over and above the standard policy death benefit). In some cases, an accidental death benefit rider will also include an additional payment for dismemberment.
In this case, the insured can collect money if they lose their sight and/or a limb. Sometimes this rider can be added without any evidence of insurability, while in other instances, the insurance company will ask questions about the insured’s occupation and hobbies in order to determine whether or not he or she participates in “risky” activities.
Living Benefits / Living Needs Rider
A living benefits/living needs rider allows an insured who is terminally ill to access a portion of the policy’s death benefits to use for current needs. In doing so, however, it is important to keep in mind that the amount of the living benefits that are accessed will be charged against the death benefit that is eventually paid out to the policy’s beneficiary.
Inflation / Cost of Living Rider
The inflation or cost of living rider can help to increase the amount of the policy’s death benefit. This increase will often be based upon the rise in the CPI (Consumer Price Index) on an annual basis.
Long-Term Care Rider
A long-term care rider allows an insured to access funds if he or she requires long-term care. This can be a good strategy for ensuring that long-term care needs are taken care of, yet without having to purchase a separate, stand-alone long-term care insurance policy. The funds that are accessed from the life insurance policy are typically a percentage of the death benefit, such as 2%, and are paid out on a monthly basis.
How Much Do Life Insurance Riders Cost?
Life insurance policy riders can vary by policy and insurance carrier. The cost of a policy rider – if there is an additional charge for it – can depend on many different criteria, including the age of the insured, as well as the insured’s health condition, and the type of policy.
When Can You Purchase Riders for Your Life Insurance Policy?
While some life insurance policy riders must be included at the time that the policy is initially applied for and issued, other riders may be added at a later time. Therefore, it is always recommended that you read over all of a policy’s small print before moving forward with a purchase.
Which Life Insurance Riders are Right for You?
While there are many different life insurance policy riders available – and some that can even be added at no additional premium cost – the rider (or riders) that are right for you will depend on your, and your survivors’, anticipated needs.
Want to Learn More About Life Insurance Riders and How They Work?
If you are considering the purchase of life insurance coverage, it is important that you know what is – and what is not – covered, as well as how you may be able to better customize the coverage to best fit your specific needs.
Learning more about life insurance policies and riders can oftentimes be best accomplished by meeting or talking with an independent insurance agent or broker. That way, you can take a look at plans from a variety of different carriers, and at different price ranges.
When you are ready to move forward, we can help. We are an independent life insurance brokerage, and we work with many of the top life insurance carriers in the marketplace today. We can provide you with all of the key details that you need regarding policies and available riders – and we can do so for you very quickly and easily, all from your computer, and without you having to meet in person with an insurance agent.
We understand that the purchase of life insurance can be somewhat overwhelming. There are many different options to choose from, and you want to be sure that you are building the coverage that will best fit in with your needs, and provide you and your loved ones with peace of mind. So, contact us today – we’re here to help.