Life Insurance Riders: Customize Your Policy
You can use life insurance riders to customize your policy to provide for multiple financial needs within the same plan.
And surprisingly, some of the benefits provided by riders can be realized while you are still alive.
Life insurance seems like a straightforward financial product.
You purchase a life insurance policy, and it pays a benefit to your loved ones upon your death.
That may be the basic concept behind life insurance. But a typical policy can do a lot more than simply pay a death benefit.
That’s why you should know all about riders before you even begin shopping for life insurance.
That’s especially important because riders generally must be added to your policy by the time your policy is issued and in force.
What is a Life Insurance Rider?
Life insurance riders are like options you can include in the purchase of a new car.
Each provides a specific benefit, either in conjunction with the life insurance policy itself or even apart from the basic policy.
Each rider provides a unique benefit. But you can add multiple riders to the same policy, providing you with a more comprehensive financial product.
Riders will add to the cost of your life insurance premium. But the cost of adding a rider will be well below the cost of maintaining a dedicated policy for each rider’s specific purpose.
If you’re shopping for life insurance, you should also be aware that riders are more commonly offered in conjunction with whole life insurance policies.
They may be offered with term policies, but the number and type of riders tend to be more limited.
Common Life Insurance Riders
There are dozens of potential riders that can be added to a life insurance policy.
Most are typical across the insurance industry. However, not all insurance carriers offer every rider type.
And in many cases, the company will have its own unique version of a typical rider.
Let’s look at the most common riders available in the insurance industry.
- Guaranteed Insurability Rider
- Accidental Death Rider
- Waiver of Premium Rider
- Family Income Benefit Rider
- Accelerated Death Benefit Rider
- Child Term Rider
- Long-Term Care Rider
- Return of Premium Rider
1. Guaranteed Insurability Rider
This is a rider that primarily applies to term life insurance policies.
Since term policies run only for the specific number of years of the policy, your coverage could end when the term expires.
Guaranteed insurability will guarantee your ability to renew the policy for a new term.
For example, let’s say you have a 20-year term policy that you believe will cover your life insurance needs for the foreseeable future.
But toward the end of the policy term, new circumstances arise, and you need to extend coverage.
A guaranteed insurability rider will provide that ability. Though it may offer policy renewal in smaller increments, such as five-year intervals.
The advantage of a guaranteed insurability rider is that it will allow you to renew your term policy beyond the original term.
But without needing to qualify based on health considerations.
That’s an important benefit because your health can change during the term of the original policy.
But with this valuable rider added, you’ll be able to extend the term without concern about a decline in your health.
This rider also has an important limitation. It guarantees that your coverage will be extended, but it doesn’t preserve the original premium level.
As is the case with all term policies, your premium will be adjusted higher based on your age at the time of renewal.
But the guaranteed insurability rider will at least eliminate an additional upward adjustment for a decline in your health.
2. Accidental Death Rider
An accidental death rider provides an increased death benefit if you die from an accidental cause.
For example, a policy with a death benefit of $250,000 may pay $500,000 to your beneficiaries if you die in a car accident—if the accidental death rider has been added to the policy.
This kind of provision is sometimes referred to as “double indemnity.”
An accidental death rider may be a valuable addition to a policy for younger applicants.
That’s because younger people are more likely to die in car accidents or even from hobby-related accidents than from natural causes.
3. Waiver of Premium Rider
This is a provision that will waive your premiums if you are unemployed or disabled.
It enables you to maintain your life insurance at a time when you are not able to afford to make the premium payments.
Waiver of premium riders do have parameters you need to be aware of.
A common one is the waiting period. The length of the waiting period will vary for unemployment and disability.
For unemployment, you’ll typically be required to continue making payments for two or three months after you become unemployed before being able to take advantage of the waiver.
There’s also a limit on the number of months the waiver will apply. For example, it may allow you to skip payments for no more than 12 months.
There will also likely be specific conditions under which the waiver will apply. A layoff is a common trigger, but the waiver will not be granted if you quit your job or if you are fired for cause.
Many waiver of premium riders also have requirements that you must be actively looking for a new job.
If the waiver of premium applies to a disability, the waiting period may be six months or even longer. During that time, you’ll need to continue making your premium payments, which will be waived thereafter.
However, many waiver of premium riders provide for reimbursement of the premiums paid during the waiting period. The waiver can continue for as long as you are disabled.
But its applicability will terminate at a specific age, which can be between 60 and 65.
This is a fairly complex rider, so it’s important to read the fine print of any provisions included under the waiver of premium rider.
4. Family Income Benefit Rider
This is one of the simpler life insurance riders, and it’s often available at no additional cost.
With the typical life insurance policy, the entire death benefit will be paid to your beneficiaries upon your death.
But if you have a family income benefit rider, the death benefit distribution can be allocated over several years.
Depending on the insurance company issuing the policy, you may have the option to spread the payments over many years.
For example, you can match the distribution of benefit payments to the years remaining until your children become adults, or even until your spouse reaches retirement age.
Distributions may also be available on an annual, semiannual, quarterly, or monthly basis.
Sometimes referred to as a “spendthrift provision,” it ensures your beneficiaries will be provided with a stable income over an extended period of time.
It’s an especially valuable option to add to your life insurance policy if you have dependents.
5. Accelerated Death Benefit Rider
Though we normally think of life insurance as a death benefit, it’s also possible to add certain “living benefits.”
Life insurance companies have developed accelerated death benefit riders for this purpose.
Under a typical accelerated death benefit rider, you’ll be able to access a portion of your death benefit if you are diagnosed with a terminal illness.
“Terminal illness” will be defined in the rider, but will usually include a life expectancy of between 12 and 24 months.
That is, there must be a terminal illness diagnosis for you to be eligible to access the death benefit of your policy while you’re still alive.
Exactly how much you’ll be able to collect on your death benefit in advance will depend on the language contained in the rider.
Most companies will pay anywhere from 50% to as much as 100% of the death benefit under this provision. The proceeds can generally be used for any purpose, whether it’s related to your illness or for general living expenses.
In reality, an accelerated death benefit rider will give your policy a dual purpose—giving you access to your policy benefits while you are still alive and dealing with the illness, and paying a benefit to your loved ones upon your death.
For this reason, you want to avoid accessing 100% of the death benefit while you are still alive, so that funds will be available for your beneficiaries upon your death.
6. Child Term Rider
Many life insurance policies offer you an opportunity to extend coverage to your minor-aged children.
It will enable you to add term life insurance policies for each of your children, even those born after the policy is first put in force.
A typical child term rider will allow the child term coverage to be converted to whole life—which is permanent coverage—once the child reaches the age of majority.
They’ll also have the option to increase the amount of the death benefit, commonly up to five times the amount provided for in the term rider.
While it is possible to purchase a term policy for a child—which will be fairly inexpensive—it’s even less costly when you include it as a child term rider.
In effect, it enables you to insure your entire family under the same policy.
7. Long-Term Care Rider
This is another example of a living benefit provided for in a life insurance policy. This rider will give you access to the death benefit in your policy if you require long-term care.
It can even be an excellent—and less costly—substitute for a standalone long-term care insurance policy.
That can be important because long-term care policies are notoriously expensive, especially as you get older.
Specifically, a long-term care rider applies when you can no longer perform at least two of the six activities for daily living.
That doesn’t necessarily mean you must be confined to a long-term care facility like a nursing home. It may also apply if you are in need of in-home care, or an equivalent.
If this rider is selected, you should be aware that it usually only permits payment of benefits for expenses related to your long-term care.
The rider can also be an expensive addition to your policy.
But the advantage is that many companies provide for payment of benefits in excess of your policy death benefit, as it will continue paying for the rest of your life if care is required.
8. Return of Premium Rider
This is a provision that will refund the premium payments you have made—typically on a term life insurance policy—if the policy expires before you die.
In a way, it adds a cash value to a term life insurance policy, not entirely unlike that provided in a whole life insurance policy.
But this rider comes at a steep price. The insurance company may charge you two or three times the premium that would apply on a term policy without this rider.
And unfortunately, the premiums paid don’t accumulate interest. The insurance company retains any earnings on the premiums paid.
Given the high cost of adding this rider to a term life insurance policy—which is specifically designed to be low-cost—it’s not recommended.
Purchasing a whole life insurance policy would be a better choice. It will accomplish a similar outcome but more cost-effectively.
You could also purchase a basic term policy and then save and invest what you would pay for the return of premium rider instead.
Should You Add on Life Insurance Riders?
The answer to this question will depend on your financial needs. Adding riders to your policy can help meet these needs.
If you’re just looking for pure life insurance, you may have no need for riders. But most people will likely find certain riders to be valuable additions to their basic coverage.
For example, if you plan to purchase a term life insurance policy, you’ll definitely want a guaranteed insurability rider.
Term life insurance policies will end within the specified term. So this rider guarantees you’ll be able to retain coverage—albeit at a higher premium rate—when the term expires.
An accidental death rider will be an excellent addition if you regularly partake in potentially dangerous hobbies, or spend an above average amount of time driving.
Meanwhile, an accelerated death benefit rider will be a solid choice if you have a family history of debilitating health conditions that may require accessing a portion of your death benefit while you are still alive.
Carefully evaluate the financial concerns you have, and determine which rider(s) will best address that need.
Riders are an excellent way to customize a basic life insurance policy to address multiple financial concerns in your life.
If you’re shopping for life insurance, consider adding any of the riders above that apply in your situation.
You should also inquire if the company you are applying with has any additional riders that may enhance the coverage options of the policy you’re applying for.