Life Insurance Riders: Are They Worth The Extra Cost?

Life insurance riders are add-ons to your policy that provide extra coverage or benefits. They can help you personalise your policy to better suit your needs and the needs of your loved ones. While some riders are included at no extra charge, others might raise your rate. So, are they worth it?

Well, it depends on your specific needs and circumstances. If you need additional coverage, riders can provide significant value, sometimes at no extra cost. For example, if you're diagnosed with a terminal or chronic illness, a rider could allow you to access your death benefit early. Or, if you want to provide coverage for your spouse or child, there are riders for that too.

However, not all riders are created equal. Some may cost more than they're worth, so it's important to weigh the cost against the financial risk and your individual situation. A financial advisor or experienced insurance agent can help you navigate your options and determine if any riders are worthwhile for your goals.

Accelerated death benefit rider

An accelerated death benefit rider, also known as a terminal illness rider, is an add-on to a life insurance policy that allows you to access your policy's death benefit before you die if you are diagnosed with a qualifying serious illness, usually a terminal one. This rider is often included in life insurance policies for free, but some insurers may charge a fee for accessing the benefit.

• Eligibility: To be eligible for this rider, you typically need to be diagnosed with a terminal illness and have a life expectancy of 6, 12, or 24 months or less, although this can vary by insurer and state. Some insurers may also allow activation if you need long-term care or develop a critical or chronic condition.
• Payout: The amount you can access depends on your insurer, policy, and state. You may be able to use anywhere from 25% to 100% of your death benefit while still alive. The payout is typically made as a lump sum, but some insurers offer the option of monthly payments.
• Usage: There are usually no restrictions on how you can use the money from an accelerated death benefit rider. While it is commonly used for medical bills or the cost of care, you can also use it for other expenses, such as travel or experimental treatments not covered by insurance.
• Impact on Policy: The amount you receive through the rider will be deducted from your beneficiary's death benefit. If you have a permanent policy with cash value, the rider may also limit access to the cash value.
• Tax Implications: In general, accelerated death benefits are not taxable if you are terminally or chronically ill. However, there are exceptions, such as if the benefits exceed the cost of qualified long-term care services or if the policy is transferred to another individual.
• Cost: While some insurers include this rider for free, others may charge a fee or interest if you decide to use it. The cost can vary depending on the insurer, but it typically ranges from $100 to $300.
• Peace of Mind: This rider can provide peace of mind and help ease financial stress for you and your loved ones during a difficult time. It allows you to access funds to cover medical expenses and other needs while you are still alive.

Overall, an accelerated death benefit rider can be worth considering, especially if it is included in your policy for free. It can provide financial support and flexibility during a challenging time, allowing you to access a portion of your policy's death benefit early to cover medical and other expenses. However, it is important to weigh the cost and implications, as it may increase your premium and reduce the death benefit for your beneficiaries.

Accidental death rider

An accidental death rider is an optional add-on to a life insurance policy that provides an additional payout to your beneficiaries if you die from a covered accident, such as a car crash or a fall. This rider is typically available for both term and permanent life insurance policies and can be added without a medical exam until around the age of 65.

The main benefit of an accidental death rider is that it provides greater financial security for your loved ones in the event of your accidental death. This can be especially important if you have dependents or face high-risk situations in your work or daily life. The rider typically doubles the payout to your beneficiaries, providing them with additional support during a challenging time.

However, it's important to note that the rider comes with exclusions and won't pay out under certain circumstances, such as death resulting from risky activities, suicide, drug overdose, or illegal activities. Additionally, the death must occur within a set period after the accident, such as 90 days, for the extra benefit to be paid out.

The cost of an accidental death rider can vary depending on factors such as age, health status, and the amount of coverage desired. While it may provide valuable peace of mind and financial protection, it's important to carefully evaluate the additional cost, which can significantly increase your premium payments.

Child term rider

A child term rider is an optional add-on to your life insurance policy that provides a small amount of life insurance coverage for your children. It is also known as a child insurance rider or child term rider. One child rider typically covers all of your children and any children you have in the future. It is much more affordable than taking out a standalone life insurance policy for your child since the rider will provide a smaller payout.

The child rider is a cost-efficient way to insure the life of your children without having to buy a separate life insurance policy. It is an affordable way to make a long-term investment in your family's well-being. The rider is tied to the legal guardian's policy, so if that expires, so does the coverage for the child.

The child rider provides a death benefit if your child passes away. While most children don't need life insurance, a child insurance rider can cover funeral costs for grieving parents or secure coverage for children with medical conditions that might make getting a policy more difficult when they're older.

The cost of a child rider is minimal, at around $50 per year to cover all of your children. You can add a $10,000 child rider to your term policy for as little as $4.20 per month, whereas a child life insurance policy would cost at least $45 per month or more.

In most cases, one child rider covers all current and future children in your household, including biological children, adopted children, and stepchildren. Grandchildren aren't covered under a child rider in most cases, although they may be covered if the grandparent has legal guardianship and is younger than age 55 or 60, depending on the insurer.

To add a child rider, you, the policyholder, should be between the ages of 20 and 55. The child needs to be between 15 days and 18 years old. The coverage will last either until their 25th birthday or your 65th birthday – whichever comes first. When the policy is about to expire, your child can convert the insurance rider into a stand-alone, individual policy without needing a medical exam or having to go through the approval process again.

Long-term care rider

A long-term care rider is an optional add-on to a life insurance policy that provides additional financial protection if you are still alive but can no longer take care of yourself. This rider is typically available on permanent life insurance policies and allows you to access your life insurance death benefit while you are still alive if you have a chronic illness and are unable to perform daily living tasks such as bathing, eating, or dressing.

There are generally two types of long-term care riders: reimbursement riders and indemnity riders. Reimbursement riders will pay you back for what you spend on long-term care expenses, up to your policy's monthly limit. On the other hand, indemnity riders provide a predetermined monthly benefit, regardless of the actual long-term care expenses incurred.

The cost of adding a long-term care rider to your policy will depend on the insurer and the type of life insurance. It is typically priced as a standalone product, making it more expensive than other riders. This type of rider can add anywhere from $600 to $800 to your premiums annually.

When considering a long-term care rider, it is important to note that every payment received under this rider will reduce the death benefit, resulting in a smaller payout for your beneficiaries once you pass away. Additionally, long-term care riders usually come with a waiting period, which could be anywhere from 20 to 100 days, during which you cannot access the benefits.

Compared to standalone long-term care insurance policies, a long-term care rider is a more affordable option. However, it is crucial to carefully consider your needs and weigh the benefits against the increased cost of premiums before deciding whether to add this rider to your life insurance policy.

Return-of-premium rider

A return-of-premium rider is an optional add-on to a term life insurance policy. If you outlive the policy term, the rider will refund some or all of your premium payments. Without this rider, your policy will expire without paying a benefit if you're still living when the term ends.

Whether a return-of-premium rider is worth it depends on your specific needs. If you can afford to pay a higher premium, it may be worth it to have the ability to reclaim past premium payments. It can function as a savings account with a bonus life insurance add-on. Also, any returns generated from this type of plan generally won't be taxed.

On the other hand, if you don't outlive your term, it will have been much more expensive than a traditional term plan while offering essentially the same death benefit. You aren't receiving any additional money, just the money you previously paid into the policy. There is also a chance you won't be able to see this benefit come to fruition.

Frequently asked questions