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When looking to buy a life insurance policy, it can be tough to predict whether the amount of coverage you choose today will still be enough in the future. If you'd like to keep your options open, one strategy is to add a guaranteed insurability rider.
So, what is a guaranteed insurability rider? This feature can allow you to add more coverage at a later date without taking another medical exam. Here is some insight into how this type of policy rider works, as well as guidance around when they may make the most sense.
What Is a Guaranteed Insurability Rider, Exactly?
This type of life insurance rider is considered an extra benefit that you can add to your policy for an additional cost when you purchase. With a guaranteed insurability rider, you gain the option to increase the size of your coverage at set points in the future, such as every three or five years. The rider could also provide you the ability to increase coverage after certain life milestones, such as getting married or having a child.
The rider will show how much you can buy at these option dates, and it's your choice whether you want to add more coverage. Adding more is likely to increase your insurance premium. Ultimately, the guaranteed insurability rider is meant only for increasing the size of your death benefit — it doesn't give you the option to reduce it to lower your premium.
How Do You Qualify for More Coverage?
With the insurability rider, you are guaranteed to qualify for the extra coverage. The insurer will not ask you to go through medical underwriting, and you can't get denied because of existing health conditions.
The insurer will also use the same health rating you received when you set up the original policy. If you developed health problems since then, they wouldn't cause you to pay more for the extra coverage.
However, the insurance company will base the premium on your age when you buy more coverage. Since you're buying more life insurance at an older age, the insurer will likely increase the premium based on age, not based on your health.
Here's an example: An individual received a Preferred rating when they bought life insurance at age 35, with the guaranteed insurability rider. At age 50, they would like to use the rider to buy more insurance. Even though they now have some health issues, they will still qualify for Preferred rates for a 50-year-old on the extra coverage.
What Are the Benefits & Potential Drawbacks?
The main benefit of a guaranteed insurability rider is that it gives you the option to increase your life insurance coverage in the future. You don't have to worry about possibly developing health problems that would block you from buying more. This way, you don't have to buy unnecessary coverage today just in case you might need it later, because the rider allows you to add more.
This arrangement can also serve as a helpful reminder to routinely review your insurance needs and make sure you have enough coverage. The options come up at regular intervals and at key life milestones, so they are a useful timetable for scheduling an insurance review.
The general downside of a guaranteed insurability rider is that adding this feature increases your premium. You'll pay this cost even if you don't end up buying more life insurance coverage.
One other thing to consider is that when you use the rider to buy more life insurance, the cost will likely be higher than when you first purchased it, because you're buying at an older age. It may make sense to purchase the larger death benefit all at once, rather than waiting until later, because you may enjoy a lower premium.
When Can a Guaranteed Insurability Rider Make Sense?
If you think you might want more life insurance in the future, adding a guaranteed insurability rider might make sense. It preserves your ability to add more coverage for a small charge, even if you develop health issues. If you're not concerned about protecting your insurability — or you believe you already have sufficient coverage — you may not want this rider.
Another consideration is the type of life insurance you would buy. This rider typically makes more sense for whole life policies. Since permanent policies can last your entire life as long as premiums are paid, it can be useful to keep your options open for this long horizon.
With term life insurance, the coverage lasts temporarily (as opposed to your entire life), so there's less opportunity to use this rider. Additionally, many universal life insurance policies are already designed to let you adjust the death benefit up and down, so you may not need this rider if you've previously purchased a policy.
If you decide a guaranteed insurability rider makes sense for you, consider meeting with a financial representative to discuss this as you plan your coverage. He or she can help to customize your policy with the right benefits to meet your unique needs.