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Buying a life insurance policy can be a bit like shopping for a new car. While certain features may come standard with your purchase, you might also be able to select others for an additional charge. In the insurance industry, these optional benefits are known as riders.
What Are Life Insurance Riders?
Because each person or business is unique, these add-ons are one way to personalize your coverage. Some life insurance riders, such as a waiver of premium, offer added protection if you become disabled and unable to work. Others allow you to convert your term coverage to a whole life policy or increase your death benefit at a later date.
Typically, insurance companies offer a variety of riders, and adding them to your policy can increase the premium you pay for your policy. Therefore, you'll want to weigh the value of each one in order to help ensure that your coverage fits your unique needs.
How Do Life Insurance Riders Work?
The life insurance company you purchase a policy from will likely have certain standard features for a given type of coverage. However, the insurer may offer additional protections that you can add to the policy — in most cases, with an accompanying increase in your premium. These riders are essentially amendments to the company's standard policy, resulting in coverage that's more personalized for your needs.
Some riders have to be selected when you first purchase your policy, while others can sometimes be added at a later date. A financial representative can help to explain the specifics of each rider and the type of customer that may benefit from it.
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Types of Life Insurance Riders
The following are some of the more common options you may come across.
Conversion Rider
Some life insurance policies have a "convertibility" feature that allows you to convert term coverage — which is only effective for a set period of time — for a whole life policy. This convertibility feature can help you transition to a permanent policy. Keep in mind that any increases in coverage are usually subject to underwriting.
With some insurers, this feature is built into their term life insurance policy. For example, the company may allow you to convert the term policy within five years of activating the policy, as long as you meet the age requirement. In other cases, the option to convert may require purchasing a rider and paying a slightly higher premium. Even if a company makes convertibility a standard feature, it may offer a separate rider that extends your "convertibility window" for an additional fee.
Waiver of Premium Rider
A waiver of premium rider helps protect you in the event that you become "totally disabled" and unable to work. By adding this rider, your life insurance policy will not lapse for a certain amount of time if you can't pay your premium due to an injury or illness. The term "totally disabled" is typically defined by the insurer, so like all riders, it's important to understand the conditions prior to purchasing one. Waiver of premium riders typically terminate after the policyholder reaches a particular age, such as 60 or 65.
This particular rider may be beneficial if an individual has a premium that they may not be able to afford if they suddenly lost their paycheck. With this benefit, you don't have to worry about foregoing life insurance coverage when you're already experiencing financial hardship.
Accidental Death Rider
This rider provides an additional death benefit to your beneficiaries if you die in an accident, such as a car collision or work-related incident. Some riders also provide an extra death benefit for "dismemberment" in the event that the policy owner suffers a serious injury, as outlined in the policy's terms and conditions. To receive those extra benefits, the accident typically has to occur within a time frame outlined in the rider.
Take, for example, a life insurance policy with a $250,000 death benefit. If the owner of that policy takes out an accidental death rider that's worth $100,000, and then dies as the result of a qualifying accident, the beneficiaries would receive a total death benefit of $350,000.
This add-on coverage may not extend to every type of accident, however. Depending on the specific language in the rider, it may exclude death or dismemberment due to war, dangerous hobbies or engagement in illegal activities.
Child Term Coverage Rider
While the premature death of your children is a pretty somber thought, it's worth asking how you would handle the expenses you might incur in the unlikely event that it happens. A child term coverage rider provides a death benefit that helps you cover funeral costs and other expenses in the event that your child passes away while the policy and rider are active. Child term riders typically expire when the child reaches a certain age.
Spousal Rider
If you have a life insurance policy, a spousal rider provides term life insurance coverage on your spouse. If your spouse dies before you, you receive a death benefit as long as the policy and rider are active. Like a child term coverage rider, this money can be used to help pay for burial and funeral costs, and other expenses.
Accelerated Death Benefit Rider
Life insurance is designed to help provide your loved ones a death benefit if you die while the policy is in force. But if you have a terminal or chronic illness, you may need financial assistance before you pass away, given the substantial cost of end-of-life care.
If your health care providers estimate that you have less than 12 to 24 months to live (the exact time frame may vary), an accelerated death benefit rider, which is sometimes referred to as a "terminal illness rider," can pay out part of the death benefit before you die. In most cases, the accelerated death benefit is limited to a certain percentage of your death benefit, and any amount you receive during your lifetime will reduce the payout that your beneficiaries are entitled to after your death. While some insurers include accelerated death benefits as part of their policies, others include it as a rider that may have an additional fee.
The scope of accelerated death benefits will vary from one life insurance company to the next. For example, some companies will pay part of the death benefit early if you become confined in a nursing home and are likely to stay there permanently. In such cases, you could use the living benefit you receive from your life insurance to help pay for the cost of the nursing home or other expenses.
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Guaranteed Insurability Rider
If you're on a tight budget, buying a relatively small whole life policy may be a better option than not having life insurance at all. If you purchase a guaranteed insurability rider, you often have the ability to increase the amount of permanent coverage later on without going through the underwriting process all over again.
Typically, guaranteed insurability riders give you the right to buy additional coverage on certain "option dates" that occur every few years. Even if your medical history becomes worse after you take out the policy, you typically cannot be denied the coverage increase or be required to pay a higher premium.
A guaranteed insurability rider might make sense if you want lifelong coverage through a permanent policy but cannot afford a large policy at the moment. This way, you may be able to increase your policy as your income grows or your needs change down the road.
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Before Purchasing a Rider
Riders can be a good way to add flexibility or expand the scope of your life insurance policy. However, adding riders will generally require you to pay an additional premium amount on top of your standard policy. Your financial representative can help to explain how these policy riders work and what their costs are. By doing a little homework now, you can gain a better understanding of which added protections could benefit you and which you may want to forego.
