A rider is a benefit which adds supplemental features to a life insurance policy, sometimes at an added cost.
At its core, life insurance is designed to provide your loved ones with protection in case you pass away, but sometimes basic coverage isn’t enough.
Life insurance provides the foundation of coverage which can guarantee a source of funds upon the death of the insured.
With riders, you can customize your policy with features to benefit you and your family today and into the future.
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A standard life insurance policy includes some flexibility, letting you choose:
- Length of coverage
- Type of coverage
- Amount of coverage
A rider extends its scope to cover additional scenarios, often coming at an additional cost.
However, some riders, such as the accelerated death benefit rider, often do not increase the premium of the policy.
Many riders have specific conditions and limitations which must be met, with availability varying by the insurance company and by policy type.
There are basically two types of riders, those that are proactive and those that are reactionary.
In other words, some policies are built to provide living benefits in reaction to an event, while others proactively add features to the policy to make it more rewarding.
Living benefits riders are those that provide protection for the unexpected, arising from occurrences you can’t control.
They include riders like:
- Critical illness benefits rider
- Long term care
- Disability income and waiver of premium
Other riders, such as return of premium riders or term conversion riders aren’t activated by an uncontrollable situation, simply serving to make the policy more beneficial.
While there are plenty more riders to choose from, the five below are the ones most commonly purchased by policyholders:
While none of these riders will hopefully ever be needed, they can provide crucial protection for your loved ones in the most difficult times if like takes an unexpected turn.
We’ll delve deeper into each one, and a few additional riders you might want to consider, below.
Before we jump into the specifics, here’s a quick definition of each rider to help guide you to the ones most useful to you:
- Accidental Death: Pays 2x the death benefit if the policyholder dies in an accident.
- Charitable Giving: Gives an additional 1-2% of the policy amount to a charity.
- Children’s Insurance: Provides a death benefit if the policyholder’s child passes.
- Cost of Living: Matches life insurance amount to the Consumer Price Index.
- Critical Illness: Grants access to death benefit if the policyholder is terminally ill.
- Disability Income: Provides income if the policyholder is disabled and can’t work.
- Disability Waiver of Premium: Halts premiums if the policyholder is disabled and can’t work.
- Guaranteed Insurability: Lets policyholder increase permanent coverage without underwriting.
- Long Term Care (LTC): Offers funding for needs like home health care services.
- Return of Premium: Returns premiums paid when the policyholders outlives coverage.
- Term Conversion: Allows conversion of term policy to permanent coverage.
Accidental Death Rider
The accidental death or double indemnity rider pays twice the amount of the face value if the insured dies as the result of an accident, with some extending this benefit to victims of dismemberment or a loss of a limb.
Some ambiguity exists with this rider in the definition of an accident and its role as the primary cause of death.
If affordable, it makes good sense for a policyholder to add this provision, especially if he has dependents.
Charitable Giving Rider
Some riders serve as adjuncts to estate planning, such as the charitable giving rider.
This rider allows the policyholder to name a charity to receive a small additional percentage of the face value as a donation on his behalf. The amount varies between 1 and 2 percent.
These riders typically don’t increase the base premium cost and offer a great opportunity to leave a lasting legacy.
Children’s Insurance Rider
The death benefit can also provide income replacement for the family for the time taken off work.
These riders are in force until a child reaches maturity, usually age 25, at which point he policyholder can opt to convert it into permanent insurance, usually without a medical exam.
The coverage amount varies, and some providers require a health profile which may affect the cost.
Cost of Living Rider
Other add-ons are appropriate for specific situations.
When you buy a policy that spans decades, you may need to make adjustments to keep up with the increasing cost of living.
The cost-of-living rider keeps the amount of life insurance coverage current with inflation based on the Consumer Price Index, allowing you to increase it in some cases.
Critical Illness Rider
The critical illness rider, an accelerated death benefit, allows the individual to receive a portion of the policy’s death benefit to pay for medical expenses if he or she is diagnosed with a qualifying terminal illness.
With some insurers, the payout may be the lump sum of the policy’s face value.
This rider is typically offered at a nominal premium or at no cost, but there may be interest.
Also note, the amount paid to the insured will be subtracted from the death benefit to the beneficiaries.
Disability Income Rider
The disability income rider makes good economic sense for both individuals and businesses, providing a monthly income if the insured becomes disabled and cannot work.
The policy will stipulate the amount paid and the length of coverage.
Some insurance companies will offer this benefit only if an accident caused the disability, while others cover disability from either an illness or an accident.
Some insurers pay following total disability, whereas others may place limitations on the amount of time the individual is paid.
Disability Waiver of Premium Rider
The disability waiver of premium rider, one of the most common add-ons, allows the policyholder to forgo premium payments if he or she becomes disabled and unable to work.
This rider ensures the policy will not lapse if the policyholder can no longer afford it, which can secure invaluable protection to your family if your income is lost.
Insurance companies vary on their specific definition of disabilities as well as age limitations.
Guaranteed Insurability Rider
The guaranteed insurability rider, or GI rider, makes sure a policyholder can renew his insurance at the end of the term without proof of insurability, such as a medical exam.
This rider is an excellent choice for a business owner funding a buy/sell agreement with life insurance, allowing him or her to increase coverage without proving insurability to match the increasing valuation of the business.
The ability to change the coverage amount ensures adequate funding if a trigger event occurs.
Long Term Care Rider
Long-term care riders are a valuable addition, helping cover the costs of a nursing home or home care with a percentage of the policy’s face value rather than the lump sum.
The family income ensures a reliable source of funds with pre-determined monthly installments instead of a single lump-sum payment.
There are also funeral and burial riders to cover these expenses.
Return of Premium Rider
Without the return of premium rider, if you outlive your term life insurance policy, you lose out on the premiums you paid.
This rider helps you to recoup the cost, paying back a percentage or the full amount of premiums refunded if you outlive coverage.
Just note that the return of premium rider will result in higher costs for coverage.
Term Conversion Rider
A term conversion rider offers an excellent option for younger people who cannot afford the high cost of a permanent policy.
With a conversion, you can pay for a less expensive term life insurance policy, later converting it to a permanent one, given specific requirements are met.
This protection provides the best of both types of life insurance policies with affordability and superior coverage.
Life insurance riders give policyholders the flexibility to customize their policy to fit their needs and adapt to the changes in their lifestyle.
They can provide individuals and businesses with the peace of mind of having coverage which will safeguard their future.
If a basic policy doesn’t offer what a buyer needs, chances are there’s a rider that can fill in the gaps.
Know the terms, weigh the cost, and evaluate your needs as you consider adding riders to your life insurance policy.