Feb. 10, 2020
Though life insurance policies can often seem like a one-size-fits all financial arrangement, it’s really anything but.
Beyond choosing basic policy provisions, like the death benefit amount, the policy term (in the case of term life insurance), or even the monthly premium, there’s a wide selection of riders that can be used to customize your policy.
Some allow you to add additional life insurance coverage, or even add other parties to your policy. But others provide what are collectively known as living benefits , because they can either waive your premiums during a time of distress, or provide you with advances against your death benefit while you’re still alive.
Most can be used with either term life or permanent life insurance policies. But I personally feel strongly that term policies are better for the great majority of people.
Let’s look at 12 the most common life insurance riders.
1| Accidental Death
Benefit to you: Increases the death benefit of your life insurance policy if an accident is the cause of death. Typically pays double the rate of the regular face value of the policy. It’s a recommended rider if your occupation is more hazardous than usual, or if you spend a lot of time on the road, either for a long commute or for work purposes.
How it works: The policy is set up to provide a fixed death benefit, say $100,000. If an accidental death rider has been added, the policy may pay $200,000 upon accidental death. The accidental death doesn’t need to be immediate either. Some policies will pay the higher death benefit if death occurs up to one year after the accident, as long as the accident was the ultimate cause of death.
2| Children’s Term Rider (or Child Rider)
Benefit to you: Enables you to add a small amount of life insurance coverage for your child (or children). The benefit amount is relatively small, intended mostly for final expenses. But it’s less expensive than maintaining separate policies for each child.
How it works: You can add a single child rider to your policy to cover all current and future children in your family. Children can be added up to age 18, and coverage will continue through age 25. The riders are typically limited to no more than $25,000 per child, and no medical exam will be required.
Most child riders also come with a conversion provision. It will allow the child to convert the rider to a separate policy at an amount up to five times higher than the benefit in the rider. The conversion generally does not require the child to pass a medical exam. That makes it a way to guarantee future coverage should your child develop a health condition, limiting his or her ability to get an independent policy.
“As a life insurance agent and as a parent, a child rider is a must on every policy,” advises Zhaneta Gechev, founder of One Stop Life Insurance. “Simply put, a child rider is an add on onto a parent’s life insurance. It covers eligible household children for pennies on a dollar, should something happen to them. Another huge advantage of a child rider is the option to convert into an individual policy.”
3| Waiver of Premium
Benefit to you: Waives your life insurance premium should you become sick or disabled, and are unable to pay. It’s an especially good rider to have if you work in a hazardous profession, where disability is a distinct possibility. Examples include truck drivers, firefighters, police, couriers, flight attendants, nurses, postal workers, and trash collectors.
How it works: If you add this rider, there will typically be a waiting period of six months once you become disabled before it applies. You’ll be required to keep your premiums current during that time, but you’ll be reimbursed at the end of the waiting period. There’s no limit to how often you can use the waiver, but a new waiting period will apply to each new episode of disability. The rider is usually available to policyholders up to age 60, but will terminate by age 65.
The cost of adding a waiver of premium will depend largely on the type of occupation you work in. The more dangerous the occupation, the higher the risk of disability, and higher the additional premium will be.
“Everyone who owns a life insurance policy should consider a waiver of premium rider, especially if you’re the sole income earner,” recommends Jeff Root, licensed insurance agent at Spectrum Insurance Group. “It’s typically a very small amount to add this life insurance rider to your policy and most life insurance companies have this option for term and permanent life insurance products.”
4| Living Benefits
Benefit to you: Adds a provision to your life insurance policy that enables you to access some or even all your death benefit if you have a terminal illness. The advanced funds can be used either in the treatment of your illness, or for general living expenses for you and your family.
How it works: With some life insurance policies this is an automatic provision, while others charge an additional premium. A typical living benefit provision will allow you to access anywhere from 25% to 100% of your death benefit while you’re still alive.
You must be determined to be terminal, which usually means death is expected within 12 to 24 months, depending on the life insurance company. If you partially access your death benefit while you’re alive, the remainder will be paid to your beneficiaries upon your death.
5| Disability Income
Benefit to you: This is another living benefit, since it will provide a monthly income while the insured is still alive. It’s also a way of providing disability insurance coverage, instead of taking a separate disability policy, which can be prohibitively expensive.
How it works: The rider will spell out the conditions required to meet qualification to be considered disabled. In most cases, the disability will need to be permanent in nature for the provision to apply. But if you are, the rider will generally pay between 1% and 2% per month of the death benefit of the policy. For example, if you have a $500,000 death benefit, and the disability income rider provides for a 1% monthly distribution, you’ll receive $5,000 per month.
There’s usually a waiting period with this rider, typically six months. In some policies, the rider also comes with waiver of premium. The rider may stipulate the cause of disability to be an accident, and illness, or both. You’ll have to be careful however, since the future death benefit paid under the policy will be reduced by the amount of monthly income received.
The disability income rider works best with a whole life insurance policy, since the policy will continue to build cash value even while monthly benefits are being paid out.
6| Guaranteed Insurability
Benefit to you: This rider allows you to purchase additional life insurance without the requirement of medical qualification. It’s typical in term life insurance policies, in which you are automatically allowed to renew the policy at the end of the original term. You won’t have to qualify based on the status of your health, but your premiums will be higher based on your age at the time of renewal.
Guaranteed insurability can also refer to the ability to add additional life insurance coverage to an existing whole life policy without medical qualification.
How it works: This provision is typically automatic under renewable term life policies. But the insurance company may set an age limit. For example, the provision may terminate once you reach 50, 60, or some other age.
“If you are concerned about your health long term and want your insurability protected, consider the guaranteed insurability rider,” says Heidi Mertlich, licensed agent at NoPhysicalTermLife.com. “Should you encounter a serious illness, like cancer, your ability to secure traditional coverage is often no longer an option. A guaranteed insurability rider can make all the difference.”
7| Critical Illness
Benefit to you: This is another living benefit rider, since it will pay part of your death benefit for the treatment of a critical illness while you are still alive. That can include a heart attack, cancer, stroke, kidney failure, or any health condition considered likely to reduce your life expectancy. The funds can be used for medical treatments or for general living expenses. It’s an excellent policy rider to have if you lack the funds to cover large and unexpected medical expenses that a critical illness will bring.
How it works: The rider works similar to the living benefit, except that it doesn’t require the insured to have a terminal illness. He or she only needs to have an illness considered to be severe, and specifically listed in the policy terms.
The funds paid to the insured will reduce the final death benefit by the amount advanced. For example, if the insured receives $50,000 out of a $200,000 policy, only $150,000 will be paid to his or her beneficiaries at the time of death.
8| Conversion Extension
Benefit to you: A conversion option allows you to convert term life insurance to permanent life insurance, like whole life or universal life. The option may be offered for a certain number of years within the policy.
For example, you may have the option to convert a 20-year term policy to permanent coverage within the first seven years of the policy. If you think you may need or want more time to consider conversion, you can have a conversion extension added to the policy that will enable you to convert for several more years.
How it works: This rider applies only to term policies, since they’re temporary in nature. Some life insurance companies may offer a conversion option as part of the policy. For others, conversion is an optional rider. But by adding a conversion extension rider, you can add more years to whatever the conversion option term is. This will increase the cost of the policy, because the rider enables you to convert to permanent coverage without medical qualification.
“The conversion extension rider is an extremely valuable provision which is available on most all Term Life insurance policies, and typically comes at no extra cost,” explains Jason P. Veirs, licensed insurance agent and owner of InsuranceExperts.com. “You also lock in your previous underwriting health class that you qualified for when you originally took out the policy, and when you were much younger and healthier and the pricing is based on your attained age the time you exercise the conversion option.”
9| Other Insured
Benefit to you: You can add another person to your life insurance policy, typically your spouse, who will be covered by a term policy. This will enable you to get coverage on the other party without taking out a separate and more costly life insurance policy.
How it works: At the time you purchase your life insurance policy, adding this rider will enable you to add another person with a separate policy provision. The additional coverages is usually term life, with terms ranging from 10 to 30 years.
With some other insured riders, the other insured person will have the option to convert the coverage to a separate policy without evidence of insurability. There’s usually a specified time limit for the conversion, as well as a percentage of the coverage amount that can be converted.
“Other Insured is one of the easier riders to add to a policy, with maybe the most immediate utility,” advises Jason Fisher, owner of BestLifeRates.org. “It insures someone other than the primary insured . While this person is covered by the main policy, the “Other Insured Rider” allows you to add a small death benefit to another person, usually a spouse, family member, business partner, or any other person who has a defined insurable interest a reason for them to be connected to this policy. Coverage amounts may be minimal, but they require little to no underwriting to get the coverage in place.”
10| Unemployment Waiver of Premium
Benefit to you: This rider works similar to the waiver of premium for disability, except that it applies to unemployment. Should you become unemployed, your life insurance premiums will be waived until you’re back working.
How it works: The waiver will have a waiting period, that may be several months, depending on the insurance company and the term you choose. There will also be a limit on how long the waiver will apply, which may be 12 months or some other time frame.
With this type of rider, you’ll need to pay close attention to all the details it includes. They will spell out specifically what constitutes acceptable reasons for unemployment (it won’t usually extend to termination for cause), as well as any requirements for seeking new employment.
11| Charitable Legacy (Foresters)
Benefit to you: Allows you to designate a portion of your death benefit to a charity of your choice.
How it works: The terms of this rider vary by insurance company, but most typically apply to very large policies, such as death benefits of $1 million or more. The rider will designate a small percentage of death benefit to a charity, up to a fixed maximum dollar amount. In most cases, there’s no additional charge for this provision.
12| Return of Premium
Benefit to you: Allows you to receive a return of the premiums you’ve paid on a term life insurance policy if you outlive the term. It will provide you with a form of cash value at the end of a term policy (term policies do not include a formal cash value the way whole life does).
How it works: If you add this rider to your term policy, you’ll pay a higher premium. The base premium will be returned to you at the end of the term of the policy, but the cost of the rider will not. For example, let’s say you take a 20-year term policy, with a $125 per month premium. $100 of the premium is the base cost of the policy, while $25 is the cost of the return of premium rider.
At the end of 20 years, when the policy expires, the insurance company will return $24,000 to you ($100 per month X 240 months). The insurance company may or may not add interest to the amount of the returned premiums.
Most of the riders listed above will be available only if you purchase a private life insurance policy. But they’re not usually offered through employer-sponsored life insurance plans, which I recommend against relying on as your primary coverage anyway.
If you’re working with a life insurance agent, or even an online provider, be sure to ask about all riders they have available. You may also want to discuss your specific concerns with the agent or representative, and let him or her make recommendations as to which riders will offer the best solutions.
But with all the riders that are available, there’s no reason to go with just a basic life insurance policy. You can use these riders to customize your policy, and make it do just about anything you want.