Undoubtedly, many people opt for life insurance to save their beloved spouses or children from financial burdens when they are gone. Everyone has a different need, so insurance companies have tried to allow policyholders to add extra features to their insurance policy using a tool called Life Insurance Rider.
These add-on features are often referred to as life insurance riders. They can provide extra coverage or make your death benefit accessible even when you are still alive. You can consider what type of riders different companies offer to pick the most appropriate life insurance.
Why should we choose life insurance riders?
When choosing life insurance, whether it is term life or whole life insurance, you all hope that it can provide you with coverage to tackle the uncertain future. You cannot be sure about what lies in store for you. Your health may become worse, or you may be unable to work. You may have to shoulder increasing responsibilities when your family welcomes new members. All these unlucky things may come to you unexpectedly.
Therefore, when picking life insurance, you should consider adding insurance riders. They can give you more flexibility and financial protection against the odds in life. Typically, you can only select life insurance riders at the time you purchase a life insurance policy. And you can have more rider options with whole life insurance because it covers different possibilities throughout your entire life.
Popular life insurance riders
You can have a wide range of rider options, so you should know each type’s features and availability. Below are some of the most popular life insurance riders.
Accelerated Death Benefit
Usually, you can have this kind of rider automatically added to your policy without any extra cost. It allows you to withdraw one part of your death benefit to use on the condition that you have a terminal illness or your life expectancy is less than one year.
The money you take out will not be subject to tax. You can use it to pay medical bills or for any purpose without explaining it to the insurer. However, when you withdraw money from the death benefit, your beneficiaries will receive only the remaining amount at your death.
But keep in mind that different companies may set the amount you can withdraw differently. They can also give different definitions of what terminal illness means. For example:
- “Critical illness” can be understood as a health condition that you will pass away within half of a year unless it is treated.
- Chronic illness” can be interpreted as a health condition that results in your inability to do two daily activities. Generally, the insurers define these activities as eating, moving, getting dressed, bathing, toileting, and continence.
Waiver of Premium Rider
With this rider, you will be free from premium payment when you become disabled and cannot earn money due to illness or injury before a predetermined age. The waiver can be applied to the base policy until you would return to work. A waiver of premium rider will turn out to be helpful, especially when you have to pay high premiums. However, you should be aware of your policy’s terms and conditions because the insurance agents may define the term “totally disabled” differently.
Long-Term Care Rider
Thi rider allows you to withdraw a portion of money from your death benefit to pay for long-term care. You can have a sum of money when opting for this rider instead of just paying for a stand-alone long-term care insurance coverage. However, a long-term care rider can cost you many hundred dollars each month because any potential claim may be costly to the company.
Term Conversion Rider
By selecting this rider, you can turn a term life insurance policy into a permanent one. This is helpful when you suffer from declining health and worry about high costs for a permanent life policy. Depending on each policy, you can only convert one part of your term life policy to a permanent one and keep a smaller term life coverage. Your insurance company will inform you of what permanent life insurance you can select and the new cost you must pay.
Guaranteed Insurability Rider
This type of rider is only available in permanent life insurance, such as universal life insurance and whole life insurance. It enables you to raise your insurance coverage with a shortened application process. In other words, you can increase your benefit without taking a new insurance exam or answering health questions.
Accidental Death Rider
Also called a double indemnity rider, this rider will pay you an extra amount of death benefit if you pass away due to an accident. Usually, when you die from accidental bodily injury, your family will receive twice your original policy’s benefit. If you are the breadwinner in your family, you should make this rider purchase to support your family expenditure after your death.
However, make sure that you know accidental death rider restrictions because some insurance agencies limit the term “accident” ‘s meaning.
How to select life insurance riders wisely?
To select the best-suited life insurance rider, you should figure out how much you must pay periodically. Typically, life insurance rider options are usually listed separately from your life insurance policy. As with most insurance products, the cost becomes higher when there is more chance of a claim.
You can consider your financial risk and the rider cost to see whether a rider is worth it. What’s the rider cost and the possible benefit if you purchase it? Do you desperately need a rider right now or possibly in the future?
Suppose you find it hard to make up your mind, especially when you have unique health or financial circumstances. In that case, you can seek professional advice from financial consultants or life insurance agents. Expert agents and advisors can guide you on the kind of rider you need and whether a rider is suitable for you.
What to know when you add or remove insurance riders?
When you add a life insurance rider after buying a life insurance policy, you need to undergo the underwriting process again and potentially a medical exam. Therefore, you should purchase any rider at the time you get the base life insurance policy.
Conversely, you can drop a rider easily by filling in a form to confirm that you want to remove this rider.
In a nutshell, depending on your specific needs, you can decide whether you should add or drop a rider. In general, riders can be worth your choice since it offers you the additional coverage you need without purchasing a separate insurance policy.
Frequently Asked Questions
In general, you cannot add a rider to a life insurance policy already in effect. However, some carriers may permit you to add riders after you sign. During the underwriting process, it is advisory to consult your insurance agent about insurance rider options so that you can designate your needed one in your policy.
Life insurance riders offer additional benefits in addition to the standalone benefits of your insurance policy. Insurance riders vary in terms of price, based on different insurance companies and insurance types you purchase. Some companies provide riders at an extra fee, while others offer at a low cost. Whether an insurance rider is worth buying depends on the individual situation. Therefore, you should think over the cost you pay for the riders and how important specific riders may be for you.
An accidental death benefit is an additional feature that can be added to your standard life insurance policy at an additional cost. The accidental death benefit will raise the payout to your beneficiary. In other words, your beneficiary will get the death benefit along with any unexpected death benefit provided by the rider. Those working in a potentially dangerous environment or driving more than average should pick this rider to protect their beneficiaries if an accident occurs.
The critical illness insurance rider is the additional feature you can add to your policy so that you can receive the accelerated benefits to cover specific illness treatments. The payout is withdrawn from the death benefit and is a lump sum payment, so insurance companies will pay your beneficiaries the remaining death benefit when you pass away. The terms of your chosen rider will specify which diseases are covered. Commonly, the diseases include life-threatening cancer, heart attack, stroke, kidney failure, and critical conditions that lead to your life expectancy reduction and unaffordable medical bills.
A long-term care rider allows the policyholders to withdraw a portion of the death benefit when they are still alive. When you do not use your long-term care benefits, your beneficiaries will receive the whole death benefit minus your policy loans. Those with a high need for life insurance can opt for a standalone long-term care policy. However, those who can afford the excessive cost should consider LTC riders to cover the expenses at old age. Regarding the varying cost of LTC riders, it is advisable to be sure if the premiums remain the same every year or increase over time.
A family income rider is an insurance policy’s additional feature that your beneficiary will be paid an equal amount of money to your monthly income when you pass away. The insurance company will pay the benefit in installments together with the death benefit, ensuring that your family will encounter fewer financial problems after your death. When you consider buying this rider, you have to determine how long the benefit is paid to your family.