There are many questions to ask when buying life insurance. Is it better to buy a term or permanent policy? What is the right amount of life insurance? Who should be your beneficiaries?
Aside from these important questions, there are various add-on options to consider. These include long-term care insurance, child riders, and disability riders.
For those new to life insurance, that’s a lot to take in. As such, the purpose of this next section is to define riders, explain how they work, and if they’re worth adding to your life insurance policy.
What are Life Insurance Riders?
For a small additional cost, you can customize your existing life insurance policy with a rider. Riders can be classified into two categories: the living benefit and the death benefit.
If you designate living benefits to your beneficiaries after your death, you can use some of their money for your needs while you’re still alive. A death benefit rider is designed specifically for your beneficiaries to take advantage of after your passing.
In lieu of standard coverage, riders offer supplementary benefits that you wouldn’t normally have access to. By doing so, they can assist you in personalizing your policy to meet your unique needs, as well as those of your loved ones. These features are much like the options available to you when buying a new car. They can add a lot more convenience and are often affordable, but you might not need or want them all.
Some riders increase the cost of your life insurance premium, while others are included at no extra charge. Below are some of the most common life insurance riders and how they work.
Why are Life Insurance Riders Important?
Try all you might, there is no way to predict what will happen in the future during the lifetime of life insurance policies. In addition to your responsibilities, your family may grow. There’s also a possibility that your health will change unexpectedly.
Moreover, there’s a chance that you will lose the ability to work in the future. Although life is unpredictable, life insurance coverage can give you the confidence and peace of mind to face this this uncertainity — regardless of what happens.
Riders may help you achieve additional financial protection while you’re still living, whether you’re purchasing a term or permanent life policy. Normally, permanent life insurance policies offer more customizable riders than term insurance policies. Why? Because they’re designed to cover a variety of different risks during a lifetime of the policyholder.
What Life Insurance Riders are Available?
Short answer? It depends on the policy that you’ve bought.
To begin, the insurance policy should be your first consideration. Again, there are different types of life insurance. Term life insurance, for instance, is a straighforward product that provides a death benefit for a specific period of time. There’s also participating whole life insurance policies, which provide a death benefit for the policyholder’s entire life as well as accumulating cash values and dividends.
As a general rule, the kind of riders available depends on the coverage type you possess. Moreover, some insurers may offer a variety of riders, while others may not. And, it may be impossible to add some riders to a policy if they’re only available in certain states.
Common Life Insurance Riders and What They Cover
Hopefully, you at least have a basic understanding of what life insurance riders are and why they’re worth exporing. Now, let’s take a look at some of the most common life insurance riders and what they cover.
Accelerated death benefit (or living benefit) insurance riders
You can protect your finances while you’re still alive with an accelerated death benefit rider, which may also be referred to as a living benefits rider. You may be able to utilize the proceeds of your life insurance death benefit to cover the costs of eligible, unexpected expenses, such as the cost of treatment for a terminal illness.
In most cases, insurers advance the insured a portion of the base policy’s death benefit. You may receive more income than you would have expected from an insurance company on the day of your death. This rider generally requires a small premium, or sometimes none at all. Before purchasing a rider, check what is covered by the insurer’s definition of “terminal illness.”
Also falling under this umbrealla is a terminal illness accelerated death benefit insurance rider.
The accelerated death benefit rider (ADB) pays benefits when you are terminally ill. ADB is commonly included as a free benefit in most life insurance policies. If you have six to 12 months to live, you’d be eligible for a payout. However, your insurance company will require a doctor’s diagnosis to confirm that you’re terminally ill.
Among the end-of-life services covered by these riders are hospice care, nursing home care, or hiring a private nurse. However, it’s not mandatory to use the funds for care. In fact, some insurerssuggest that you use the living benefit to make your last days more enjoyable and memorable, like going on a dream vacation with your family.
If you’re curious as to why these also called “living benefits,” it’s because ADB riders use the death benefit before they die. That simply means that funds are distributed as needed rather than as a lump sum.
Also, amounts vary. But they can reach up to 80% of the death benefit. Tax laws vary from state to state, so you should check with a tax law expert to make sure the payout is not taxable.
Accidental death rider
A life insurance policy with an accidental death rider increases your life insurance benefits if you die in an accident covered by the policy. Sometimes this feature is called a “double indemnity” rider because it helps your beneficiaries receive twice as much money.
To qualify for the extra benefit, the death must occur within 90 days after the accident. Also, this rider has exclusions and won’t pay out in certain circumstances, such as death caused by:
- Combining alcohol with drugs or medications
- Mental illness
The cost of an accidental death rider is typically higher. Up until a certain age, around 65 years old, you can add it to a term or permanent life policy without a medical exam. When you reach a certain age, usually around 70, the payout from an accidental death rider may decrease.
Accident death benefit policies are different from accidental death riders since they only pay out in the event of accidental death. Death from an accident and dismemberment, or AD&D, insurance, cover fatal injuries as well as non-fatal injuries.
Child term rider
A death benefit may be available for you if your child passes away before a specified age, helping you pay for expenses such as funerals. When the child reaches age 25, the rider can be converted into a permanent life insurance policy without having to undergo a physical examination. This is worth persuing for children with chronic diseases since they otherwise wouldn’t be eligible for a life insurance policy.
Critical illness rider
If you’re no longer able to do two out of the six Activities for Daily Living (ADL), eating, bathing, getting dressed, toileting, transferring, and continence, while still alive, there are some insurers who offer chronic illness riders. Note that disability must be certified as permanent by a medical professional.
When you are diagnosed with a life-threatening condition, such as cancer, kidney failure, or heart disease, the critical illness rider will pay you a lump sum that can be used for your medical care. The amount will be deducted from the death benefit your beneficiaries would receive.
A disability income rider on your life insurance policy can provide you with a monthly payment if you are unable to work due to a qualifying disability. The payment in most cases will be a disability benefit to replace the income you lost due to your disability.
Family income benefit rider
In addition to the lump-sum death benefit, this rider provides monthly payments to your loved ones. While you’re alive, the monthly amount corresponds to your income. In the case where you’re the breadwinner of your family, you could replace your monthly income with the family income benefit rider.
Guaranteed insurability rider
You can increase your life insurance coverage by adding a guaranteed insurability rider without having to take a medical exam or fill out a health questionnaire.
During “option periods,” which are predetermined windows of time when additional coverage can be purchased, you can generally increase your coverage every three to five years. Many times, you can also obtain additional coverage when you experience life-changing events, such as marriage or childbirth. As long as you’re under 40 years old, you can generally purchase additional coverage.
Life insurance with LTC rider
In addition to permanent life insurance, long-term care can be added to the policy. In the same way that chronic illness riders activate your benefits when you’re unable to do two of the six activities of daily living, long-term care riders pay specifically for long-term care expenses.
Does life insurance with a long-term care rider make sense financially?
Well, according to Genworth’s Cost of Care Survey, you can expect to pay $290 per day, or $8,821 per month, for a private room in a nursing home. While, semi-private rooms average $255 per day, or $7,756 per month.
Considering these costs, this rider might be in your best interest.
Return-of-premium insurance rider
In the event that you outlive your insurance term, a return-of-premium rider will refund the premiums you paid. Insurers often charge additional fees to help you get a little money back from your policy, which can be quite expensive — often tripling your original premium.
The various administrative fees you may incur when filling out the application will not be reimbursed at the end of the term. Rather than paying a high premium now, you would do better investing the return-of-premium amount into an interest-bearing retirement account. Also, with return-of-premium insurance, you don’t earn interest on your money. As a consequence, this may make your coverage unaffordable.
However, you may be able to get your money back in the end if you purchase a term policy sold as return-of-premium insurance. Even so, you should still be cautious when approaching these policies.
The term conversion rider can convert term life insurance into a permanent life policy after your term life insurance’s term ends. Even better? You can do this without having to undergo a medical exam.
What if your health takes a turn for the worse? A conversion may be the only possible way for you to ensure your family’s death benefit.
Although the cost of extending your policy for the rest of your life will cost more, since you’re older and possibly in declining health, converting it may be easier than reapplying for a new policy.
Waiver of premium rider
As a result of injury or illness, the insured is exempt from future premiums if they become permanently disabled or loses income with this rider. Why’s that important? Because when a breadwinner can no longer generate an income, their dependents may struggle financially. The waiver of premium rider eliminates the obligation for policyholders to pay policy’s premiums until their employment is restored.
Your insurer will likely require you to show proof of your disability every few years, as well as statements from the Social Security Administration and your physician.
A waiting period of about six months may also apply to this rider. If you’re approved, though, your waiting period premiums will be reimbursed. If you’re disabled, or if you reach a certain age, typically between 65 and 70, then your premium payments will be covered.
Note that the waiver of premium rider can only be added at the start of coverage. And your disability cannot be pre-existing at the time of purchase.
Are Life Insurance Riders Worth It?
Riders for life insurance vary in price. It is worth shopping around for life insurance policies that include some of these. You can save money by replacing a rider with an alternative type of insurance coverage. For instance, it may not be necessary to add the waiver-of-premium rider if your employer already provides disability insurance.
At the same time, it may be worth the extra cost to pay for long-term care riders rather than actual long-term care. Due to its potential high cost, however, the accidental death rider may not be worth paying for. The good news is that if you have a high-risk job, many employers will pay for coverage.
Life Insurance Riders FAQs
What is a rider on life insurance?
An insurance rider can add additional protection to your life insurance policy so that you and your loved ones are better protected. In addition to the standard terms and conditions of your policy, it also contains additional terms that give you greater flexibility in adjusting the policy terms or receiving payments while you’re still alive.
What benefits do life insurance riders provide?
There are a number of different riders available for life insurance, each providing a different benefit. Riders for accidental deaths or disabilities, critical illnesses, and more are readily available. Typically, they’re provided for situations in which additional expenses are incurred.
What are the disadvantages of life insurance riders?
When a rider isn’t covered by your insurance policy, it can be expensive, hard to qualify for, and might not be enough coverage.
Are riders available with all life insurance policies?
Life insurance policies usually include them. Just be aware that different life insurance companies may provide riders with their policies that are different from each another.
Can you add a rider to an existing life insurance policy?
A life insurance rider cannot usually be added to an active policy. But, some companies will allow you to add one after you buy a policy. Your life insurance agent should explain to you the options available to you in regards to riders. And, they should be able to guide you in deciding which riders to add to your policy.
What are some usual exclusions of riders?
Usually, cases of suicide, self-inflicted injury, and death or disability caused by risky activities and sports are not covered by riders. Other exclusions include intake of drugs and more.
What is the exact definition of disability as accepted for claims to riders?
In their rider brochures, the insurance company defines all definitions concerning disability, critical illness, and any other speciality the rider serves. To avoid claim rejections, it’s advised that you carefully review such definitions.
To prove a critical illness, disability or the like, what kind of certification is required?
It’s usually necessary to get a physician’s certification. In some cases, a company-appointed physician must also provide additional certification.
How much are the benefits provided under the rider?
Rider benefits are equal to the sum assured by the rider. In some cases, benefits may only be paid once during the term of the policy. According to the conditions provided, there might be an option to continue or to stop the rider.
Do riders have maturity benefits?
The terms and conditions of each rider determine whether maturity benefits are paid.
Can riders be terminated or cancelled?
Yes, riders can be terminated before it matures. But, this depends on the specifics of the rider and the insurance company.
Be aware that a term rider cannot generally be added back once it has been removed. So be careful to only remove it if the coverage is no longer required. Also, removing the rider reduces the premium since you aren’t paying the rider’s cost. Assuming the rider has a cost, your premium will also reduce when the term matures.
The rider can normally be canceled by contacting the insurance company. If you want to remove the rider, you’ll probably need to sign a form. And, you risk having your insurance policy canceled if you fail to pay the cost of the rider when paying your premium.