For the most part, all life insurance does the same thing in principle: if the insured dies a death benefit is paid to the beneficiary. But that does not have to be all that your policy does. With the right life insurance riders in place, you can supercharge your term life insurance or permanent life insurance protection.
When a rider is attached to a life insurance policy, it changes the contract to improve flexibility for the policyholder or perhaps even to provide additional protection in life as well as death.
As you will see in just a moment, there are several life insurance riders and we will be taking you through your main options today. If you want to enhance your policy so it is tailored to you and your specific needs as well providing an added layer of protection, life insurance riders are the perfect way accomplish this goal.
Life Insurance Riders
Depending on your chosen life insurance policy type, whether term life or permanent life insurance, you will have access to several different options that enhance the protection of your policy in the form of riders. Not everyone needs these additional riders but they are certainly worth taking the time to familiarize yourself with as they can add much value in the right circumstances.
When you buy term life insurance, you know that you will be eventually faced with renewing the policy at the end of the term, finding different coverage at some point in the future, or forsaking life insurance down the road. However, a conversion option can prevent this because it allows a term life insurance policy to be converted into a permanent policy. Because you have already opened a policy with the company and paid for the rider, there will be no medical exam or health questions. As long as you convert before the age of 70 or before your term ends, the rider will work. If the policyholder is diagnosed with a disease or illness that would make them struggle to get new coverage, this rider will come in handy.
Accelerated Death Benefit
If you are ever diagnosed with a terminal illness, you will be entitled to up to 50% of the face value of your insurance assuming that you can provide medical reports and proof. In most cases, the doctor’s note will need to show that you have less than one year remaining although some companies will accept two years. For the most part, this money can be used however you wish but it is obviously intended for medical bills and to put affairs in order before death. In some policies, the accelerated death benefit rider will come free with insurance but you will need to check with the specific carrier you are considering just in case.
Disability Waiver of Premium
Rather than having full disability insurance, the waiver of premium rider ensures that you won’t have to make payments should you become disabled at any time during the policy’s life. If the policyholder is unable to work or receiving care, this can be useful because it allows expenses to go elsewhere and protect the policy from potentially lapsing.
For this rider, the rules in place will generally vary from one insurer to the next and this includes period of coverage, how long the premiums will stop for, whether there is a waiting period before qualifying, and whether ‘disability’ means total or any other definition assigned by that specific carrier.
Otherwise known as the additional purchase option, this is most commonly used by the younger generations because it allows additional coverage to be purchased without any evidence of insurability. Starting at the age of 25, there will normally be options every three years and the end date for this will depend on the insurer. While some companies stop offering the option at 40 years of age, other may reach to 65 or somewhere in between.
In addition to this, alternate purchase options will also be made available if certain critical life events were to occur. For example, birth of a child or even marriage are events that companies would allow the exercising of the option. In some cases, you will also be able to exercise the option after adopting a child and making other significant changes to your life where you believe you will require more life insurance.
Additional Term Insurance
Much like the guaranteed insurability rider above, the additional term insurance rider allows additional life insurance to be purchased, generally around 4 times the current death benefit, on the insured, a family member, or an associate (such as a business partner) as long as an insurable interest exists.
Although similar to the first two options we saw, this one is slightly different because it requires the policyholder to prove that they cannot complete two of the activities of daily living. In total, there are six and they are pivotal to survival – bathing, walking, eating, dressing, continence, and visiting the toilet. If you cannot do two or more of these activities of daily living (ADLs), the chronic illness rider will come into play and you will be entitled to a certain percentage of the death benefit either as monthly payments or a lump sum.
Return of Premium
Again, this one is primarily for those who have term life insurance and it allows all the paid premiums to be returned at the end of the policy assuming you don’t die during the term of the policy. Although it is a little more expensive than regular term life insurance, this is a great way to recuperate your cost after outliving the policy. In this light, you can actually look at it like an investment but it still needs to be considered carefully since premiums can increase by 50% and more compared to term life without the ROP rider.
Accidental Death Benefit
Within the United States, accidental death is extremely rare which is normally why insurance companies are more than happy for you to take out this particular rider. Essentially, the rider says that the beneficiary of your policy will still get paid for accidental death. When it comes to the term ‘accidental’, this normally applies to something that will occur at work or in your personal life that wasn’t expected as opposed to cancer, heart disease, stroke, etc. For those who work in industries where accidents are a possibility, this rider could prove to be a sensible move. Also, motorcycle riders might want to consider an accidental death benefit rider, but check the fine print of the policy to make sure you are still covered!
In this rider, the policyholder will be allowed to access a certain percentage of the death benefit for care-related expenses if required. There are different long term care plans to choose. Proceeds from the LTC rider can be used for care in a nursing home, assisted living, or in home care. Benefits may last two years to six years, with some plans lasting your entire life. The rider kicks in if the insured cannot perform 2 of the 6 activities of daily living. Also, if the insured has severe cognitive impairment the LTC rider will typically be applied.
Extension of Benefits
With an accelerated death benefit, you will receive an amount that falls within your policy but an extension will then push you beyond this amount, upwards of double the amount of accelerated coverage. Normally, the amount and all the different circumstances that affect this rider will vary from one insurance company to the next so you will need to assess your chosen policy before adding this as it will cost a little more money to have it in place.
Over the years, there has been many misconceptions regarding lie insurance and one of the biggest seems to be that you cannot have children on a life insurance policy. Granted, they may not be able to have their own policy but they can be added to an adult’s via the child term rider. Normally, the cost will be the same regardless of how many children you add but they will need to be included before the age of 17. Then, the end date will vary depending on the carrier but the latest that they must be removed is normally 25 years of age.
Paid-Up Additions (PUAR)
With the paid up additions rider in place, the policyholder can increase the cash value of the policy and therefore impact the death and living benefit. If you are implementing some type of personal financing with your cash value life insurance, this rider can be incredibly useful because the policyholder can supercharge the cash value accumulation of the life insurance policy through the purchase of paid up additions that directly affect the cash value and death benefit of the policy.
Disability Income Rider
Th disability rider is different from the waiver of premium rider. This rider allows the insured to collect monthly payments from the insurer if the insured is disabled. There is typically a six month waiting period required before any funds will begin to be received by the insured from the insurer.
When it comes to life insurance, these are the main life insurance riders that you will want to consider. Of course, you might not want to add them all because you will be paying large amounts of money for your coverage but it can be good to add the ones that apply to your life. As mentioned at the beginning, some offer increased flexibility while others provide an added layer of protection so hopefully we have given you something to think about!