A life insurance rider is an additional feature added to a life insurance policy. A rider is a legal term, meant to denote an amendment, change or addition to a legal contract. Life insurance riders can be an added feature for an additional charge, or they can be included in a policy. Some riders often included as standard in most life insurance policies are the term conversion rider and the accelerated death benefit rider. Riders may provide benefits to the owner or beneficiaries of the life insurance contract.
A rider will have an additional charge associated with it in most cases over the standard cost of insurance, but some riders may be free. Riders may be added before the time of the issue or they may be added after a contract has been issued if allowed by the life insurance company. The ability to add a rider after a contract is issued depends on the specific rider rules for each rider at each company, and it varies.
The life insurance riders we cover in this article include:
- Disability Income Rider
- Waiver of Premium Rider
- Guaranteed Insurability Rider
- Accidental Death Benefit Rider
- Accelerated Death Benefit Rider
- Term Conversion Rider
- Spousal Policy Rider
- Long Term Care Rider
- Removing a Rider
- Why Riders are Useful
Disability Income Rider
This rider offered by most life insurance companies will pay an income if the owner of the policy becomes completely disabled during the policy’s lifetime. If a disability occurs, the policy will pay a set monthly amount either until retirement or until the disability ends, depending on the exact language of the rider (varies company to company). This rider can be relatively expensive compared to other insurance riders because of the risk to the insurance company, though it may be less expensive than separate supplemental disability coverage.
Waiver Of Premium Rider
The waiver of premium rider will waive any cost of insurance if the owner of the policy becomes disabled. A disability will usually reduce income, and life insurance is often one of the expenses that people will cut first, even though it is important to own. The waiver of premium rider will keep the insurance policy in force without any premium payments for as long as the owner remains disabled, or until age 60 or 65, whichever is first. The waiver of premium usually ends at age 60 or 65 because this is the age that retirement normally occurs, at which point income would likely not be impacted by disability beyond this point.
This is one of the most common riders and is typically not too expensive to add to a policy. This is useful to protect financial health if a disability were to occur.
Guaranteed Insurability Rider
This rider protects an insured person in case their health declines dramatically after a policy is issued, and there is a need for additional life insurance in the future. This is extremely useful because this is a very common situation for many policyholders. The guaranteed insurability rider will guarantee access to a set maximum limit of additional life insurance without any additional underwriting requirements.
This rider is doubly important because additional life insurance is extra useful to those people who have suffered a decline in health since death is more likely to occur. Examples of this include suffering a heart attack or stroke, diabetes, gaining a significant amount of weight, or any other serious illness such as cancer. This rider is often not too expensive and can be a very important addition to many policies.
Accidental Death Benefit Rider
The accidental death benefit rider provides for an increased death benefit in case death occurs by accident rather than illness, which can be very sudden. This rider may also provide a benefit for the loss of a limb or appendage. This rider is often very inexpensive but is a bit like gambling on what will be the cause of death.
Accelerated Death Benefit Rider
The accelerated death benefit rider provides a life insurance death benefit payout before the insured person’s death in certain circumstances. The circumstances that would initiate this early claim include terminal illness, a long term care event, or confinement to a nursing home. This can be a very important benefit for people in these circumstances because the life insurance death benefit can pay the medical bills, protecting the insured person’s estate and easing obligations for heirs. It also can be a less expensive way to provide long term care coverage than a long term care insurance policy.
Some life insurance policies include this rider at no additional charge, and it is offered by all major life insurance providers.
Term Conversion Rider
Most term life insurance policies come with a term conversion provision included at no additional cost. This allows the policy owner to convert a term policy to a whole life policy during certain points in the life of the policy. Typically this can be done up until a certain year, not until the end of the term, but sometimes it is allowed up until the term expires. This rider is important because if an insured person has a change in their health for the worse, it allows them to lock in life insurance coverage for the rest of their lifetime in the same death benefit as their term policy is for. Otherwise, they may never qualify to purchase another life insurance policy again, or it may not be affordable.
A spousal rider is a separate death benefit added to a life insurance policy that will pay upon the death of your spouse. While this is typically a much smaller death benefit than the primary policy, it can still provide needed financial protection in the case of the death of a spouse. Underwriting is typically more limited, and it can help defray costs such as school, childcare, or funeral expenses if a spouse passes away. The benefit of a spousal rider is that it is less expensive than a separate policy and there is only one policy to manage instead of two, along with less underwriting on the spouse.
Similar to a spousal rider, you can also purchase a child rider, that pays a smaller death benefit upon the death of a child. This can pay for funeral expenses, or recoup medical expenses or the cost of education.
Long Term Care Rider
A long term care rider provides income in the event the insured person needs to enter a long term care facility or needs a nurse to provide in-home care. It is essentially like tacking on a long term care policy to a life insurance policy. This type of rider is not usually available on a term policy, only on a permanent form of life insurance such as whole life. It typically requires additional underwriting, and it can add considerable expense to the policy. This type of rider typically does not make sense for a younger person such as those under age 50. It is also not noticeably cheaper than purchasing a separate long term care policy in most cases, and we recommend that people consider separating their life insurance from their long term care policy in most cases. An important reason for this is the surrender of the life insurance policy would result in the surrender of the LTC policy, if it is added as a rider. A separate policy also adds more customization and a better match to the insured person than a rider and can be purchased with a higher long term care benefit.
Removing A Life Insurance Rider
Removing a rider may create an additional charge, so it is important to know the consequences of adding a rider to a policy before it becomes a part of the life insurance contract. Rider charges vary depending on the rider, and from company to company, they are all different. Some riders may be included in a policy without additional cost, and others may have a substantial cost. Please discuss any riders fully with your financial advisor before adding it to your policy.
At Life Ant, we always recommend to our clients that they read the policy prospectus regarding any rider they are considering so that all the details are clear. We also welcome any questions you may have regarding your policies rider.
Life Insurance Riders Are Useful
Some people think that life insurance riders are just a way for the insurance company to make some extra money from the policy, which is true otherwise they would not offer them, but they also can offer very useful services to the policy owners. The additional coverage provided by some disability riders, and the option to purchase additional life insurance at the same health rating as the original policy provided by the guaranteed insurability rider has significantly improved policy owners peace of mind and quality of life. At Life Ant, we believe it is important that our clients understand each rider fully and weigh the pros against the added cost of the rider.