Life insurance riders are used to enhance the coverage that your base life insurance policy offers. Some are automatically included, with your policy; at no additional cost. Others will COST EXTRA to ADD to your policy.
It is very important to read your policy and fully understand what is offered. Your agent or broker can —and should!— explain the costs AND benefits of each rider.
In this article, we list out the most common Life Insurance Riders that the majority of carriers offer. But NEVER ASSUME!!!
Life Insurance Companies are NOT all the same: each one does things a little bit differently. Always be sure to READ THE FINE-PRINT and take the time to ASK ABOUT ALL POLICY FEATURES & OPTIONS.
Did your agent or broker clearly explain which Riders were included with your Policy and which were extra?
The Most Common Life Insurance Riders that the Majority of Carriers Offer
Child Rider
Child Rider – an inexpensive and easy way for parents to get their children (natural, adopted, or stepchildren) insured without having to buy a separate policies on each child.
- Typically available for children 15 days old to 18 – 25 years of age depend on the carrier. At 25 years old, (may be different for some carriers) the rider expires.
- For a flat rate, you can insure some or all your children that qualify. It costs the same regardless of the number of children you add.
- No underwriting is required
- Some policies allow you to convert all or part of the children’s term rider into a permanent policy regardless of child’s health.
Waiver of Premium Rider
Waiver of Premium Rider – allows you to skip paying premiums if you become totally disabled and unable to work. The policy will remain in force and will not lapse even though you are unable to pay the premiums. You WILL be required by the company to prove you are totally disabled in order for the rider to go into effect.
Disability Income Rider
Disability Income Rider – provides a supplementary income benefit if you were to become totally disabled. Typically, the disability income benefit is specified as a percentage of the face amount, and is payable monthly. For example 1% of $100,000 face amount = $1,000 / month
Return of Premium Rider
Return of Premium Rider – Returns the exact sum of your premiums at the end of the term period if you do not die. In other words, you get all the money back you paid for the policy.
Accidental Death Benefit Rider
Accidental Death Benefit Rider – Pays an extra death benefit if the official cause of death on your death certificate is listed as an accident. Does not pay and extra death benefit if the cause of death is anything other than an accident.
Term Conversion Rider
Term Conversion Rider – Allows you to exchange all or part of your term insurance policy for a new permanent policy WITHOUT having to take a medical exam. The health class from the term insurance policy will carry over to the new permanent policy. For example, if you were Preferred Non – Smoker on the term policy, you will be Preferred Non-Smoker on the new permanent policy. The rates for the new policy will be based on the your attained age at the the time the conversion occurs. Restrictions may apply. For example, some policies read “can convert the policy in the first 10 years or to age 65 which ever comes first”. Always consult the policy for the details.
Accelerated Benefit Rider
Accelerated Benefit Rider – Accelerated benefits in a life insurance policy gives the policyowner access to some amount of the policy’s available death benefit if the insured experiences a qualifying event—a terminal, chronic, or critical illness—for which immediate cash can be used.
There are three basic conditions known as benefit triggers that insurers have adopted as grounds for payment of accelerated benefits:
- terminal illness
- critical illness or critical injury
- chronic illness
Terminal Illness – A terminal illness condition that qualifies for the payment of accelerated benefits is usually defined as one that will result in the insured’s death within a specified period of time (typically 12 to 24 months). The time period begins when the insured is certified as having a terminal illness. Depending on the state, policies that offer accelerated benefits may be required, at a minimum, to make terminal illness a condition for the benefits. It’s common for benefits under a terminal illness condition to be paid in a single lump sum.
Critical Illness or Injury – A critical illness or injury is a life-threatening condition which, without medical intervention, is likely to result in death or in a drastically limited life span. Such conditions include:
- major heart attack
- coronary bypass
- stroke
- cancer
- organ transplant
- kidney failure
- paralysis
- coma
- blindness
- severe burns
Depending on the policy, a waiting period may be required in order for benefits to be accelerated for a critical illness. For example, a company might specify that the rider must be in force for at least 30 days prior to the insured experiencing or being diagnosed with the qualifying trigger in order for benefits to be advanced. This stipulation would not apply to conditions caused by an accident. The effective date for accelerated benefits for a critical injury is the date of the policy or rider. A critical illness or injury benefit can be included along with a terminal illness benefit within the same policy. Moreover—and again, depending on the policy and state in which it is issued—an insured who, due to underwriting, is denied coverage for a critical illness may still be issued a stand-alone terminal illness benefit.
Like accelerated benefits for terminal illness, those for critical illness are usually paid in a lump sum. They may be particularly attractive for individuals who have a family history of such illnesses.
Chronic Illness – A chronic illness is the experience of living with a long-term physical or mental deficiency or disorder. As a condition for accelerated benefits, it is usually defined in terms of the inability to perform a certain number of activities of daily living or as severe cognitive impairment, requiring constant supervision, an ailment that is typically controllable but not curable.
Activities of daily living, or ADLs, are defined as:
- bathing
- eating
- dressing
- toileting
- transferring
- continence
Accelerated benefits payable based on ADLs typically require that the insured be unable to perform two of the six activities. Benefits payable based on cognitive impairment require that the insured must need substantial supervision. In addition, the insured must have been certified as being chronically ill within 12 months preceding any claim for benefit.
In many cases, qualifying for accelerated benefits under a chronic illness certification could require that, in addition to meeting the ADL or cognitive impairment criteria, the condition must be permanent. If, for example, an insured suffered a broken hip, was immobilized for three months (needing care at home) and then recovered, he or she may not qualify for chronic illness acceleration.
Benefits under a chronic illness rider are typically defined as some percentage of the policy’s death benefit (70, 90, or 100 percent, for example), paid in a series of periodic payments, such as monthly. For example, the full benefit amount might be defined as 90 percent of the policy’s death benefit, paid as monthly payments of 3 percent of that amount.
Cost of Living (COLA) Rider
Cost of Living (COLA) Rider – increases the policy death benefit to coincide with increases in the Consumer Price Index (CPI). Keep in mind if the death benefit increases, so does the premium. It is important to note that the death benefit DOES NOT decrease if the CPI decreases.
Guaranteed Insurability Rider
Guaranteed Insurability Rider – this rider allows you to purchase additional life insurance in the future without having to prove how healthy you are. The option to purchase more coverage can be made only at specified times or for certain life events such as a marriage or the birth or adoption of a child.
FREQUENTLY ASKED QUESTIONS ABOUT OPTIONAL POLICY FEATURES
What is a life insurance “rider?”
A life insurance rider is something that is added to a base life insurance policy, most of the time at an extra cost. Kinda like a “trim package” is added to a car. The most frequently added rider to a life insurance policy is a Child Rider which is a great way to insure you children.
What is waiver of premium?
Waiver of premium is an optional rider you can add to your life insurance policy for an extra cost. It says the life insurance company will waive the premiums due on your policy if you become disabled and are unable to pay. This way your policy will not lapse.
What are accelerated death benefits, critical illness rider, and terminal illness rider?
There are 3 types of benefits known as “living benefits,” so named because you can use the benefits while still living. They differ in the details but the bottom line is you can access the death benefit before you die if you are critically or terminally ill. You can actually get a portion of the death benefit – typically up to 50% – accelerated to you while you are alive to help pay for these expenses, go on vacation, or do whatever you want with the money.
What is the two-year contestability period?
It only lasts the first 2 years of a life insurance policy after which it expires. If you commit sucide in the first 2 years of the policy, the insurance company will not pay the full death benefit, only return the premium plus interest. Also if you die in the first 2 years of the policy and the life insurance company determines you committed fraud in order to purchase the policy or get a better rate, for example lying and saying you were a non smoker when you really smoked, they will also return the premium plus interest. The contestability period expires after 2 years at which time the company will pay the full death benefit.
What is the suicide clause?
The sucide clause is in every life insurance policy. It says if you buy a life insurance policy and commit suicide in the first 2 years of the policy, the life insurance company will not pay a death benefit. Instead, they will return the premium you paid plus interest.
What does term conversion mean?
Conversion is a privilege that some life insurance policies have, but not all offer. It allows you to exchange your term life insurance policy for a permanent policy (whole life or universal life) before your term life expires. The price of the new permanent policy is based on your attained age at the time you switch. You also carry over the same underwriting class to the new permanent policy you had on the term life. So if you were approved “preferred health” on the term originally when you bought it, you will be “preferred health” on the new permanent policy. This feature could be very useful if you were approved for “preferred health” on the term then had a health change (heart disease or cancer etc.) which makes renewing your existing term or buying a new term policy impossible.
What is the free look period?
All life insurance policies have it. That actual time may vary from company to company. Either 20 or 30 days. The free look period means you can cancel your policy no questions asked in the first 20 or 30 days of the contract and get all your money back. After the free look, no refunds of unearned premium are return if you cancel.
The Bottom Line
No matter where you shop, make sure you’re very clear on what’s included AND what’s extra!
Always READ THE FINE-PRINT.
Always take the time to ASK ABOUT ALL POLICY FEATURES & OPTIONS.
Leave feedback about this