Life insurance plays an important role in your financial planning but there can be times when the coverage it offers is just not sufficient. What do you do then? Life insurance riders help you personalize your base policy depending on your specific needs.
What are life insurance riders?
A life insurance rider is an extra benefit you can add on top of your life insurance policy to supplement its standard coverage. Riders may increase your premium rates but they also offer a lot of flexibility which can be immensely beneficial.
How do life insurance riders work?
Riders can work before and even after a life insurance policy is issued. They change the policy terms and conditions depending on the insurance company. Some insurers may even give you rider options along with their life insurance quotes.
Why should you get life insurance riders?
Life insurance riders allow you to add useful features or even extend coverage to situations that may not be covered by regular policies. This gives your financial planning some additional flexibility to keep it dynamic depending on your changing needs.
For example: With an accelerated death benefit rider, you can get some of your death benefit in the event that you get diagnosed with a terminal disease. On the other hand, a standard policy would only play out your death benefit after your death.
However, it’s important to weigh out the cost and benefits of riders to see if the additional premiums are worth it. Consider speaking to a financial advisor to find the best riders to suit your family’s specific financial needs.
Types of life insurance riders
Guaranteed insurability riders:
These give you the option of increasing your coverage in the future with no medical exam. There are ‘option periods’, which are time frames of 3-5 years within which you can buy additional coverage. Some even allow for increased coverage at life-changing events like marriage or having children. These riders usually allow additional coverage till the age of 40.
Return of premium riders
These riders give you a refund of your premiums in case you outlive your life insurance term. You can supplement both existing and new life insurance policies with these riders.
While they can be beneficial, return of premium riders usually come with hefty premiums. Also, typically, they don’t include refunds for add-ons and any extra fees that you pay for.
Waiver of premium riders
These riders give you a premium waiver, or they simply pay your premium if you become sick or disabled and cannot pay your premiums.
Waiver of premium riders usually come with a waiting period of 6 months and require a medical proof of disability. Upon approval, they typically cover you till you stay disabled or until a pre-decided age like 65 or 70.
Generally, these riders can be added only at the time of purchasing coverage and they require that you don’t already have a disability.
Accidental death riders:
Also known as ‘double indemnity riders’, these increase the payout to your beneficiaries in case your death is caused by a covered accident, such as drowning.
Accidental death riders only pay out if death from the accident occurs within a fixed time period, like 3 months. Plus, they don’t payout the extra benefit if you die from causes like suicide, diseases, rioting or mental illness.
These riders do increase your premiums but they can be added to both whole and term insurance policies with no medical exams, up to the age of 65.
Accelerated death benefit riders:
Also known as “terminal illness benefit riders” or “living benefit riders”, these allow you to get a portion or all of your death benefit if you’re diagnosed with a terminal illness, even when you’re still alive. These can be really helpful in taking care of medical expenses. You can add these riders to your existing or new life insurance policy.
If you receive benefit from accelerated death benefit riders, these benefits get subtracted from the death benefit your beneficiaries will receive when you die.
Family income benefit riders:
With these riders, your beneficiary receives additional death benefit in monthly installments instead of a lump sum. This is meant to serve as a replacement income for your family when you’re not around. It helps manage your death benefit as family income so that your family doesn’t suffer financially.
Term life insurance riders:
These riders let you buy term life insurance to supplement your existing permanent life coverage. This gives you extra financial cover for the term or fixed period of time.
Term life insurance riders can be especially beneficial if you want added coverage without having to buy expensive whole life insurance policies. They can save you a lot of money in both- the short as well as long term.
Term conversion life insurance riders:
These allow you to upgrade your term life insurance coverage to whole life coverage towards the end of the term. They can prove to be a lot cheaper than buying a new policy at retirement. Also, they don’t usually require a medical exam during the conversion.
Matt Schmidt with Diabetes Life Solutions notes “for many people who have a change in health over time, the term conversion rider may be extremely beneficial. As an example, let’s say you’re a person with Diabetes, and you’ve developed Diabetes complications over time. Most likely you could not ‘reapply’ for coverage as you’d be declined. The term conversion rider may be the only way you can obtain future life insurance coverage.”
Child term riders:
These riders allow you to cover your children in the same insurance policy as yours so that you don’t need separate policies to cover them. You can add biological, adopted or step children and there is no need for a medical exam. These riders pay out an extra death benefit if the child dies before the age of 25 years or before the ‘age of maturity’.
Barring some restrictions, typically, a child term rider can be converted to a permanent policy once the child reaches the decided age of maturity.
Long-term care riders:
These pay out your death benefit while you’re alive to provide financial support if you’re in need of care for daily activities like bathing, dressing and eating. These are of two types:
Indemnity riders: They allow for a fixed, pre-decided monthly payout, irrespective of the actual expenses.
Reimbursement riders: They allow for refunds on your actual expenses within the policy limits.
Other types of life insurance riders:
These are not so common, yet can be beneficial for you if they suit your specific financial needs.
Spousal insurance riders:
These riders allow death benefit to pay out to you in the event of your spouse’s death. However, it does not offer spousal coverage in case of a divorce.
Cost of living riders:
These allow your coverage to increase gradually so that it aligns with the Consumer Price Index and inflation. However, premiums also increase proportionately.
Disability income riders:
These allow you to receive monthly payouts as income if you’re permanently disabled.
Chronic illness riders:
These are like accelerated death benefit riders but they work for chronic diseases like stroke, heart attack, etc. as well as terminal illnesses such as cancer.
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