What are life insurance riders?
Life insurance riders are additional coverage that can be attached to an application for term or permanent plans of insurance.
The life insurance riders will typically have an additional premium charge. Although, some life insurance riders are included on the base policy with no additional premium.
Examples of life insurance riders
There are a multitude of life insurance riders that can be added to life policies. Below are some of the more common riders that are attached to the base policies:
- Accelerated Benefit Rider- the accelerated benefit rider, if offered on a policy, typically has no extra charge. This benefit allows for an insured to have access to the death benefit prior to death.
These life insurance riders offer access to the death benefit if needed for chronic illness.
A licensed physician must certify that the insured is chronically ill and permanently unable to perform at least two of the six activities of daily living or is terminally ill.
Case Study: Jerry, age 65, is retiring. Jerry has been the primary wage earner for his family and has built a substantial 401(k) balance.
At age 59, he purchased a $500,000 policy that included the accelerated benefit rider. This protects Jerry in several ways:
- Should Jerry become chronically ill, as defined by the accelerated benefit rider, a significant portion of the death benefit can be accelerated to help pay medical bills, a mortgage, or a trip of a lifetime. The use of a portion of the death benefit for this purpose could preserve other assets. This can avoid burdening other family members with ongoing medical bills.
- Having the $500,000 death benefit in place could give Jerry the ability to spend down his retirement assets. Knowing that if he dies, his wife will receive the death benefit.
- Should Jerry outlive his spouse, he has the option of retaining the full death benefit for other heirs.
Fact: It is estimated that by the year 2020 over 81 million people will have two or more chronic conditions.
- Waiver of Premium for Total Disability Rider- disability of a primary income earner can be a tremendous hardship on a family. The waiver of premium rider provides continuation of insurance protection without payment of premiums in the event of total disability of the insured. Typically the definition for disability waiver of premium to apply is defined as unable to do “own occupation” for the first five years and “any” occupation after five years. This rider also typically ends between ages 55 and 60.
Fact: According to www.disabilitycanhappen.org a 20 year old has just over a 1 in 4 chance of being disabled in their lifetime.
- Accidental Death Benefit Rider– Life insurance riders that provide a supplemental death benefit if the insured’s death results directly from accidental bodily injury within 180 days of an accident. This rider typically expires at the end of the primary insured’s nearest age 70. Usually this rider pays double the amount if the insured dies while a passenger on a public conveyance. Most accidental death benefit riders have a maximum amount that will be offered. Typically this is between $250,000 and $500,000.
Fact: Accidents are the fourth leading cause of death in the United States
- Guaranteed Purchase Option Rider- Life insurance riders that guarantee the policyholder the right to purchase additional coverage at pre-determined points in the future. This option does not require evidence of insurability. This can be a very valuable rider if there have been any changes in health since the policy was originally issued.
Typically this rider allows for an insured to increase the death benefit amount at specifics times in the future. As an example, a 25 year purchases a $100,000 with the guaranteed purchase option rider. This rider may offer him additional coverage at ages 28, 31, 34 and 40. Again, no proof of health is required to add the additional coverage. Typically this rider does have a maximum amount of additional coverage that can be added.
- Child Rider– Life insurance riders that allow additional coverage to be included on a child or children of the primary insured. The amounts of death benefit that are offered for a child is typically $10,000 per child. Some companies may offer as much as $25,000 per child. The child rider will usually end when the insured reaches age 50. In addition, typically when the age of a child reaches between 21 and 25 the rider option will expire. At that time, the primary insured may have an option to convert the child rider portion of coverage to a new policy.
These are examples of some of the most common life insurance riders. Each rider has advantages and disadvantages. It is important to discuss with your agent what your current and future goals are when considering a rider.
Many common quoting systems found online do not offer the ability to quote life insurance riders. Ask your agent for more details on what riders might be avaialble. If you would like to discuss any of the life insurance riders discussed in this article or simply want to look at options that are avaialble, please contact us at 1-888-393-9003 or mike@specialriskterm.com
