Life insurance isn’t one size fits all. Sometimes you need to tweak them for the perfect fit. Riders are add-ons that deliver additional customization and maximize the protections offered under your life coverage.
In today’s post, we’ll discuss what you need to know about life insurance riders and how they can benefit you.
I | What are Insurance Riders?
We all have different lifestyles. Insurers understand this and the need for flexibility and customization for insurance policies.
To meet the varied needs of policyholders, life insurance companies provide riders.
A rider is a clause applied to a policy document, providing additional coverage or protection. Riders are usually optional offerings by insurers to attract customers.
The name “riders” comes from the ability to attach them to your base policy. Riders can either increase the coverage in your policy or add new event-based protections.
Your application for a rider depends on you meeting the requirements and comes at an additional price. This premium, however, is much cheaper than purchasing a separate policy. The added risk coverage will be worth the peace of mind it brings.
As you’ll see in the list of riders below, they cover a variety of enhancements for insurance protection. Some increase your family’s financial support after your passing, while others give you benefits while you’re still alive.
Riders aren’t a must.
Like with all insurance products, consider if you need rider coverage.
Depending on your needs, a base life insurance policy might be enough. Again, it comes down to your lifestyle. If you have a family to support. Are you the sole breadwinner? How many financial responsibilities do you currently juggle?
You would have factored in these and more while shopping for your insurance. If the policies you encounter fall short, ask about the life insurance riders available and personalize your base policy. Either with one or multiple rider options.
II | 5 Common Life Insurance Riders
Your life insurance coverage is only a solid investment if it meets all of your needs. And that’s where riders come in. Here are some of the typical life insurance riders you should consider.
Guaranteed Insurability Rider
A guaranteed insurability rider increases your death benefits to a preset amount at established intervals.
Milestones for the increase include:
- When the policy has been active for a certain number of years;
- When you reach a particular age;
- Major life events like the birth of a child or marriage.
Suppose you need little coverage at present, but you want your policy to grow with you. In that case, a guaranteed insurability rider will give you that flexibility.
The increase in coverage comes at an additional cost, but there is an upside. You won’t have to retake your life insurance medical exam. This means your health status does not influence your rate or affect your milestone increases. You’re guaranteed coverage no matter what.
This rider is most common with permanent policies like whole life and universal life insurance.
Accelerated Death Benefit Rider
Insurers often include accelerated death benefit riders (or Living Benefit Rider) in life insurance policies at no extra charge. It offers you financial protection while you’re still alive if you’re diagnosed with a terminal illness with a two or fewer years life expectancy.
Some life insurance policies allow access to about 75% of your benefits or $250,000, whichever comes first.
The rider isn’t a payout of your death benefits. Instead, it allows you advanced access to the money from your benefits. You can use the money to pay for medical and other qualifying expenses as you get your affairs in order.
The terms for access and inclusion of accelerated death benefit riders depend on the life insurance company that issues the policy.
The downside to the accelerated death benefits.
Most life insurers attach an administrative fee to advanced withdrawals. These withdrawals come from the total sum of death benefits for which you qualify. With each withdrawal, you’ll lessen the amount beneficiaries will receive after your passing.
There are also tax implications. Although these payments are income-tax-free, early access will generate a 1099 LTC form (“Long-Term Care and Accelerated Death Benefits”). This IRS form enables individual taxpayers to report long-term care (LTC) benefits, including accelerated death benefits.
Consult a tax advisor for a full review of the tax consequences.
Accidental Death Rider
An accidental death rider increases the payout of life insurance death benefits if the insured dies because of an accident. The additional payout for a covered accident often equals the amount of the original policy, doubling the benefits.
Its doubling effect is why insurers refer to an accidental death rider as a “double indemnity” rider.
Accidents can have a jarring effect on your family and your finances. An accidental death rider helps you in unexpected circumstances in the event of death or dismemberment caused by accident. The double payout will cover your family’s expenses. An added safety net if you are the sole provider of your family.
There are, however, restrictions to this rider, as many insurance companies outline their definition of the term “accident.” For the extra benefits to become applicable, death must occur within a set period, often 90 days, after the accident.
What is an accident?
Insurers define accidental death as one that occurs strictly because of an accident. These events include:
- Car crashes
- Drowning
- Slips
- Choking
- Incidents involving machinery
In a fatal accident, death must occur within a specified timeframe noted in your policy. Some accidental death benefits may also cover dismemberment, whether total or partial loss of limbs, along with burns, paralysis, and other similar injuries.
Exclusions, whereby your beneficiaries will not receive a double indemnity, include deaths caused by:
- The misuse of alcohol combined with medications or drugs
- Diseases
- Suicide
- Mental illness
- Rioting
Adding This Rider
You can add an accidental death rider to your whole or term life insurance policy without a medical exam until you reach around 65 years old. The payout may decrease after you pass the age of 70. Ask your agent about the age milestones applicable to this rider.
Waiver of Premium Rider
Under a waiver of premium rider, if the insured becomes diagnosed with a critical condition or becomes permanently disabled, the insurer will waive all future premiums. Severe injuries, like loss of sight and dismemberment caused by an accident or disease fall into this coverage.
A waiver of premium comes in handy when the monthly payments are high, and funds are short for monthly payments. The family will continue to receive the benefits of the base policy, which may include a guaranteed income stream and bonuses based on the type of policy enforced.
The terms and conditions
Like with “accidental injuries,” insurers apply their definitions for “disabled.” Read the terms and conditions of your life policy for requirements and what exclusions your insurance company includes.
You’ll need to provide proof of your condition with a statement from the Social Security Administration (SSA) and a physician. They may also ask you for proof of your continued state of disability every few years. These requirements weed out fraudulent claims and payouts.
The waiver will stay enforced for as long as you remain disabled and unable to work or until you reach the specified age milestone. This milestone usually falls between 65 to 70.
A waiting period of around six months may apply before the claim’s payout. If you’re approved, the insurer will refund the premiums you paid during that time.
You can only add the waiver of premium riders at the start of your coverage. It isn’t available for an existing policy. Having a pre-existing disability disqualifies you from purchasing this rider.
Return-of-Premium Rider
If you’re thinking about losing your premium payments should the unexpected not occur, check out the return-of-premium rider.
The return-of-premium rider allows you to receive a refund of most or all of your premiums if you outlive your term life policy. Refunds do not include administration fees or rebates from other add-ons you purchased.
With this rider, you’ll pay your life insurance premium upfront. You don’t have to worry about monthly or yearly premiums. Return-of-premium riders are available for existing or new term life policies.
Funds to continue your protection.
Since you outlived the first, you can use the refunded premiums on a second policy. Some insurers will allow you to do so without retaking a medical exam. This advantage means your health condition when purchasing a new policy will not affect your receipt of a favorable rate.
Ask your agent about this exemption before you buy.
There are several catches to this rider.
Premiums for a return-of-premium rider are high. Think double or triple the cost of a standard policy. And all this in an upfront payment. Although you’ll get the money back, read and understand all the conditions should you outlive the policy term.
Some insurance companies don’t offer this rider option.
The expected death benefits still apply if you pass away during the term.
III | Are Life Insurance Riders Worth It?
The extra coverage is always worth it if you need it. Your life circumstances dictate whether you need a rider and the type you choose. Weigh the financial risk before purchasing a rider.
Always ask yourself—do the potential benefits outweigh the cost?
If you require professional help examining your options, speak with a financial advisor or life insurance agent.
How to Change Your Riders
Adding a rider to your life policy is easier when you do it from the outset. Including one later may require you to repeat the underwriting process and undergo another medical exam. The results may not be the same, especially if you have developed any medical conditions since you purchased your policy.
Dropping a rider is simpler. All you have to do is complete a form requesting its removal from your policy.
Conclusion
Life insurance riders provide additional benefits and enhance the insurance protections of your base life insurance plan.
Consider the following riders for better life insurance coverage.
- A guaranteed insurability rider allows your policy to grow with you without worrying about retaking your medical exam or fretting about what will happen if your health declines.
- Accelerated death benefit rider (or living benefit rider) unlocks your policy’s monetary benefits before passing.
- In the case of death caused by an uncontrollable accident, an accidental death rider will double the payout your life insurance beneficiaries will receive.
- Disability and major illness can upend all of your financial plans. With a waiver of premium rider, you can save by not paying premiums and still reap the benefits of an active life policy.
- If you’re considering a term life policy, losing your premium if you outlive it might be a deal breaker. Add a return-of-premium rider on your base life insurance plan. This rider will grant you a full or partial refund if you live beyond the term.
Additional riders typically come at an extra cost, increasing your monthly premiums. Add them after carefully considering how they will assist you and your family in the short and long term. Speak with an insurance agent if you require professional advice.
