Life Insurance Riders – The Top 20.
Like most financial products, life insurance is not one-size-fits-all.
Everybody’s situation is different, and people use life insurance for many different things. Some people want to pay off the mortgage if they pass away prematurely. Others want to leave a legacy to their children. Whatever the reason, you need to get the right insurance coverage for your situation, and you don’t want to pay for features that you don’t need.
To customize your policy, you can choose the type of insurance you want (permanent or term) and then add on the extra options, called riders. Choosing the best riders for you will give you exactly the coverage that you want.
Here’s a partial list of available insurance riders and what they mean.
Waiver of Premium Rider – If you become disabled before you are 65 years old, a waiver of premium rider lets you keep your life insurance coverage without having to pay the premium. Life insurance companies understand that your income will be sharply curtailed if you become disabled, so with this rider, they will waive the premium. The waiver ends at age 65 since at that age you would be likely to collect social security.
Critical Illness Rider – A critical illness rider, also known as critical care, lets you accelerate the death benefit from your life insurance policy if you develop a critical illness. The rider will specify which illnesses it covers, but it will typically include things like cancer, heart attack, or stroke. You will receive a lump sum equal to the death benefit of the policy, and you can use the money to pay bills or whatever else you want.
Long Term Care Rider (LTC)– This rider allows you to receive some or all of the death benefit if you require long term care. Long term care is required if you are unable to perform at least two of the six so-called activities of daily living, or ADLs. These are bathing, dressing, eating, toileting, continence, and transferring from a chair to a bed. You may also require long term care if you are cognitively impaired, with Alzheimer’s disease or dementia, for example.
Chronic Illness Rider – The chronic illness rider is similar to the long term care rider in that you must be unable to perform at least two activities of daily living or be cognitively impaired. But your illness must also be permanent, making this rider a bit more restrictive than the LTC rider.
Disability Income Rider – This rider allows you to receive monthly payments from the death benefit of your policy if you become disabled. You can determine how much you want to receive each month and how long the payment will last. You will make these decisions when you initially purchase your policy.
It’s important to note that the long term care rider, the chronic illness rider, and the disability income rider are more like additional insurance policies since each of these types of insurance can also be purchased as separate policies. For this reason, there may be additional underwriting requirements for these riders.
Terminal Illness Rider – If you have this rider and you develop a terminal illness, you may have access to a certain portion of the death benefit before you pass away. A terminal illness is defined as one that is likely to result in death within 12 months. For example, if you have a $500,000 policy, and you are diagnosed with inoperable cancer, you may be able to receive $250,000 of your death benefit. When you pass away, your heirs will receive the remaining $250,000. Most policies include this rider at no charge.
Living Benefits Rider – This is a catch-all term that can include a critical illness rider, a long term care rider, a chronic illness rider, a disability income rider, and a terminal insurance rider. In short, it’s a rider that pays some or all of your death benefit while you’re still living. If you are purchasing this rider, make sure you understand exactly what is covered, as it may not include all of these scenarios. Living benefit riders, as well as any of the individual riders that pay money before you die, are usually available on permanent life insurance policies and sometimes on term life insurance policies.
Accidental Death Benefit – Sometimes called a Double Indemnity Rider, this rider pays a multiple (usually two times) of the death benefit if the insured dies in an accident. The policy should spell out specifically what is considered an accident.
Term Conversion Rider – Most people need more life insurance when they are younger. If you are 25, starting a family and buying a home, you want to make sure that your spouse and children will be taken care of if you pass away prematurely. You might buy a 30-year term policy. By the time you get to be 50 or so, you don’t need as much, but you want your life insurance to last for the rest of your life. With a term conversion rider, you can convert all or part of your term coverage to permanent insurance. You will have to pay the higher permanent premium, but you usually do not have to go through underwriting again, so this is a good option for those whose health may disqualify them for a new policy.
Term Insurance Rider – This is added to a whole or universal life policy. It lets you purchase additional term coverage when you buy your permanent policy. It’s the inverse of the term conversion rider, because you purchase the permanent policy at the outset and then add the term coverage that you need for the length of the term.
Spouse Insurance Rider – This is a rider that allows you to add coverage for your spouse to your policy, which can be less expensive than buying a separate policy. The only drawback is that if the primary insured dies, the spouse’s coverage will end.
Child Term Rider – This is a popular rider for young families. It allows you to add a small amount of coverage for your child(ren) to your policy. Once the child becomes an adult, the coverage ends, or sometimes the policy can be extended or converted to a permanent life insurance policy. Make sure to go over these options with your insurance agent when you purchase the policy.
Other Insured Rider – This works the same way as a spouse or child rider, but the other insured is someone other than a spouse or child. It must be a person who is in some way connected with the insured – not a friend or stranger.
Guaranteed Insurability Rider – This is also called a Renewal Provision or Additional Purchase Option. This gives you the ability to purchase additional coverage at a later date without having to show evidence of insurability. This means you don’t have to go through underwriting, so there will be no medical questions or medical exam.
Inflation Protection Rider – This rider is more common on long term care insurance policies, but you can also get it for a life insurance policy. It raises the death benefit by a certain percentage so the longer you live, the larger your death benefit.
Overloan Protection Rider – Permanent life insurance policies will allow you to *borrow against the cash value. If you borrow too much or the cost to insure you rises more than expected, you run the risk of having the policy lapse. This rider pays the required premium to prevent the policy from lapsing.
Family Income Benefit Rider – This rider pays a monthly benefit to the beneficiary(ies) instead of or in addition to a lump sum. The monthly benefit is usually equal to the insured’s monthly salary.
Spouse’s Paid-Up Insurance Purchase Option – This is automatically included with some policies. There is no extra charge for it. It lets a surviving spouse use the death benefit of their deceased spouse to purchase a paid-up life insurance policy for themselves. For example, suppose Jose dies and his wife Skylar is the beneficiary of his $500,000 life insurance policy. She can either take the $500,000, or she can use it to purchase a single-premium paid up policy on herself. The policy she buys would have a higher death benefit than $500,000 (unless she is already 85 or up).
Paid Up Additions Rider – A whole life insurance policy is designed to eventually be paid up so that no additional premiums are required yet the death benefit is maintained. A paid up additions rider, PAUR, provides additional paid-up insurance, increasing the policy’s cash value and death benefit. It is one of the biggest benefits of whole life insurance.
Funeral and Burial Insurance Rider – Not so much a rider per se as a specific type of policy, funeral and burial insurance is typically a low face amount policy that is purchased for the express purpose of paying for the insured’s funeral and burial. As such, it is a type of permanent insurance.
Make sure you get the coverage you want and need!
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This information is provided for general consumer educational purposes only and is not intended to provide legal, tax or investment advice. Dollar amounts are for illustrative purposes, not actual. *Loans borrowed from your life insurance policy will accrue interest. An outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim.
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