Before we cover everything under the sun you could possibly need to know about riders, we must make one thing VERY clear:
Don’t worry about the riders until you’ve figured out your base policy.
Riders are ways to customize and tweak your policy if needed. They are NOT the main course. Would you ask your food server about the type of lettuce used in the side salads before looking at the entrees?
Take care of what is most important first
That means figuring out your coverage needs and policy type first. If you need help, grab some quick quotes using our quote tool or contact us with any questions.
Ok, moving on to the ultimate guide to life insurance riders…
What is a Policy Rider?
A rider is a life insurance provision purchased separately from your standard policy. Most insurance riders come at an additional cost, but they can be used to customize your policy with extra benefits or coverage. Many standard policies offer little customization options aside from your coverage amount and term.
A standard life insurance policy may or may not fill all of your coverage needs. Life insurance riders can be used to fill any coverage gaps to address specific concerns you may have.
Riders vary by life insurance provider and policy type. The cost of each rider will depend on many factors such as the type of policy and your health and age.
Riders cost money (most do) Be cautious of an insurance salesperson trying to add a bunch to your policy. Learn about them first and only buy what really makes sense for your situation.
Which Riders Are The Best/Worst?
Wish I could say it’s that easy but…
Anyone that does claim to have the answer is probably someone you shouldn’t be listening to. That is like trying to sell you a mini-van before asking if you have any children.
Some riders are more common than others, but everyone has different needs. Some people reading this article won’t need ANY riders at all.
Read through the explanations below. See if any might apply to your needs. Then consult with a trusted independent life insurance professional to get accurate pricing and answer remaining questions.
Life Insurance Riders
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- Accelerated Death Benefit (ADB) Rider
- Accidental Death Benefit Rider
- Automatic Premium Loan Rider
- Child Protection Rider
- Cost of Living Rider
- Critical Illness Rider
- Disability Income Rider
- Family Income Benefit Rider
- Guaranteed Insurability Rider
- Long-Term Care Rider
- Other Insured Rider
- Paid-Up Additions Rider
- Payor Benefit Rider
- Return of Premium (ROP) Rider
- Spousal Rider
- Term Conversion Rider
- Term Insurance Rider
- Waiver of Premium Rider
Accelerated Death Benefit (ADB) Rider
The accelerated death benefit rider is perhaps the most commonly purchased life insurance add-on. Many life insurance companies offer it for free or at a low cost. With this rider, you can collect a percentage of your life insurance policy’s death benefit if you are terminally ill and are expected to die soon.
Some policies will also pay some or all of the policy’s benefit amount if you are in circumstances that significantly affect your quality of life or longevity, such as moving into a nursing home. Your policy will specify how much of your death benefits can be collected early and what will be available upon death. The amount collected while living will be subtracted from any future death benefit.
While this rider is usually offered for free, there may be a fee if you use it.
Accidental Death Benefit Rider
This rider offers an additional benefit on top of your policy’s death benefit IF you die from an accident, but only if.
This type of add-on coverage is also called “double indemnity” if the extra payout is equal to the policy’s original death benefit. For example, your policy may have a $100,000 death benefit that is increased to $200,000 if you are killed in an accident. In some cases, the accidental death benefit rider offers an extra payment for dismemberment, such as if you lose your eyesight or a limb.
If you enjoy high-risk hobbies or have a career considered to be dangerous, the rate for this rider will be higher. There are also some cases in which the accidental death benefit rider will be voided, such as death that results from illegal activities or service in the armed forces. Some insurance companies will void the rider if the accidental death occurred during a dangerous activity like skydiving.
Automatic Premium Loan Rider
What happens if your premium payment is inadvertently missed? Whether you changed bank account information or simply forgot to pay the premium, you risk cancellation of your policy. With an automatic premium loan rider, if your premium is still due at the end of your grace period, a policy loan is made automatically from the cash value of your policy to pay the premium. For this provision to kick in, your policy must have a cash surrender value that is at least equal to the loan amount and one year’s worth of interest.
This premium is not available with term policies.
Child Protection Rider
This rider offers final expense coverage in the event of the death of a child. We feel strongly about this one and have dedicated a separate article to it. Click to read everything you should know about child riders
Cost of Living Rider
With the cost of living rider, you can buy additional coverage each year to offset inflation and increasing insurance needs. The additional amount of coverage you can buy will be based on rises in a cost of living index. Most insurance companies use the Consumer Price Index to determine how much inflation has occurred each year.
Critical Illness Rider
With a critical illness rider, the insurance company will pay a lump sum if you are diagnosed with a specific critical illness like stroke, heart attack, or cancer. You may use the benefits for any purpose while you are treated.
A critical illness rider does NOT require that you have qualified long-term care expenses to be eligible for your accelerated benefit, unlike a long-term care rider. After the money has been disbursed, you can use it for any need you may have.
In general, this rider will increase the cost of your life insurance policy by 10% to 20%. According to IRS rules, the death benefits paid out are limited to $330 per day as anything over this amount will be considered taxable income.
Any benefits paid out while living will be subtracted from the death benefit.
Disability Income Rider
This type of rider gives you a regular income from your insurance provider if you are disabled and unable to work.
Your policy will specify the amount of income you will receive and whether it will be paid for the length of disability or for a specific amount of time. Note that some disability income riders only pay if you are disabled due to an accident, but some will pay if you are disabled due to an illness.
A disability income rider works a lot like a long-term disability (LTD) insurance policy. This coverage can give you a regular monthly stipend, but it is typically capped at two years. Insurance premiums for the policy and all riders are generally waived while you receive the disability benefits.
A disability income rider is not as comprehensive as LTD insurance, but it is an affordable way to protect yourself against lost income due to disability. If you cannot qualify for or afford a standalone disability insurance policy, this type of rider is the next best option.
Family Income Benefit Rider
Life insurance death benefits are typically paid out to beneficiaries as a one-time lump sum, but you can choose to distribute your benefits in installments. A family income benefit rider gives your policy beneficiaries a monthly stipend if you die. This monthly benefit is paid out in addition to the standard death benefit.
You can choose the amount of time your beneficiaries will receive the monthly stipend. As you age, the length of time for which your family is eligible to receive the benefit declines and eventually disappears. This rider is popular with people who are their family’s main source of income as the monthly benefits can serve as income.
Guaranteed Insurability Rider
This type of rider is designed for people who have declining health but will need more coverage. With a guaranteed insurability rider, you can buy additional coverage at a later time without a medical exam or any proof of insurability. If you think you may need more coverage in the future, this rider may be worth the cost.
In most cases, a guaranteed insurability rider allows you to buy extra coverage at specific intervals such as at certain ages or every 3-5 years. When you have the chance to buy additional coverage, your insurance provider will consider your age to set a premium, not your health.
Long-Term Care Rider
A long-term care rider works like long-term care insurance. While not all states allow this type of rider, it is becoming more common as the cost of long-term care continues to rise. This rider allows you to accelerate or draw early from your death benefit if you need long-term care.
For this rider to go into effect, most insurance companies require a prognosis of death within 12 months. Your long-term care benefits may be limited to a percentage of your policy’s face value and your death benefit will be reduced by the benefits you receive. Some insurance companies reimburse you for care expenses as you incur them up to a limit. Others give you a percentage of the death benefit each month that can be applied to your care expenses.
The premiums on a standalone long-term care insurance policy can be high. A long-term care rider can be an affordable way to protect yourself if, in the future, you require long-term care.
Other Insured Rider
The other insured rider provides the option to add term coverage to a person “other” than the primary insured. There must be insurable interest on these other parties. The limits of coverage will often be somewhat low or tied to a percentage of the primary insured’s death benefit amount.
If higher coverage is required, separate policies should be considered.
Paid-Up Additions Rider
Paid-up addition riders can only be used with whole life insurance policies that have a cash value component. Along the way, the policyholder purchases additional units using the policy’s dividends as they accumulate over time. The additional units add to both the death benefit and the cash value of the policy.
Another benefit is that these additions are guaranteed increases in coverage without the need to go through medical underwriting again.
Payor Benefit Rider
A payor benefit rider can be added to a juvenile’s life insurance policy. With this rider, any subsequent premiums due will be waived if the payor dies or becomes disabled before the juvenile reaches majority age.
Return of Premium (ROP) Rider
A return of premium rider protects you if you outlive the term life policy. If you survive to the end of your policy term, you will get the money you paid in premiums returned.
The return of premium rider can be very expensive because you are getting a big extra in return. The younger you are when you buy your policy, the lower the cost: the ROP rider may only cost an additional 30% to 50%. As you get older, the rider can make your premium double.
As an example: suppose you get life insurance at the age of 40 with a premium of $633 per month. If you survive for 30 years and your policy lapses, you will have paid $18,990 in premiums and get nothing back.
Suppose the same policy with a return of premium rider had an annual premium of $1,285 instead. At the end of 30 years, you would get the full $49,536 back that you paid for the last three decades.
Because you are simply getting your premium back, the money will be tax-free under current IRS rules. If your insurer includes any additional interest, this could be subject to taxation.
The spousal rider was once one of the most popular life insurance riders. It is not as common as it once was as more insurance companies now encourage people to buy individual policies. This type of rider allows you to add life insurance coverage for a spouse. Many people choose a spousal rider rather than getting a separate life insurance policy. In most cases, this rider provides term life insurance coverage for a spouse and it is often more affordable than buying a separate policy.
Term Conversion Rider
If you believe you will want to convert your term life policy to a permanent life insurance policy in the future, a term conversion rider may be a good choice. Term life insurance gives you coverage for a specific amount of time, usually 10, 15, 20, or 30 years. Permanent life insurance gives you coverage for your entire life.
A term conversion rider allows you to convert your term policy into permanent or whole life insurance without a medical exam. This type of rider is most attractive to young people who want coverage but cannot afford the higher cost of permanent life insurance.
Keep in mind this type of rider usually comes with a deadline for converting your policy.
Term Insurance Rider
A term insurance rider adds additional coverage on top of the base policy. This is typically used if extra coverage is required for a shorter, specific period of time.
For example: The primary policy is a 20-year term for $500,000. The insured requires an extra $100,000 in coverage for only 5 years. They are able to add this to the same policy by using the term insurance rider.
Waiver of Premium Rider
By adding this rider to your life insurance policy, you will not pay the policy premium if you are totally disabled and unable to work. This type of waiver usually expires around the age of 60 or 65.
Every life insurance policy has its own definition of disability so you will need to check what types of injuries or illnesses are covered. In most cases, the rider will waive all premiums on your policy if you become disabled without interruption for a minimum of 6 months. With most companies, if the disability begins before the policy anniversary when you are 60, and continues without interruption until you are 65, all future premiums will be waived.
This type of rider can help you keep your life insurance coverage if you are disabled and do not have savings to cover unemployment or you do not have long-term disability insurance.
Keep in mind that available riders, requirements, and costs do vary between insurance companies.
If you have any questions on riders or other life insurance needs, please feel free to reach out to us.
We specialize in life insurance only and will help you under no obligation or cost.
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