Whole Life Insurance Riders: Understanding The Benefits And Drawbacks

Life insurance riders are a way to customise your insurance policy by adding benefits or protections that meet your specific needs. Riders are typically offered on both term and whole life policies, and they can be added at the time of purchase or later on, depending on the type of rider. While some riders are available at no extra cost, others will increase the cost of your premiums. The cost of adding a rider is generally low because it requires minimal underwriting. Riders can provide benefits such as an accelerated death benefit, a waiver of premium, long-term care, accidental death benefit, and more. They can also be used to add family members, such as a spouse or children, to your insurance plan. It's important to compare policies and understand the specific terms and conditions of each rider before making a decision.

Accidental Death Rider

An accidental death benefit rider is an optional add-on to a life insurance policy. It provides an additional death benefit if the policyholder passes away due to an accident. This means that, after your passing, your beneficiaries may receive more than the policy's regular death benefit.

The cost of adding an accidental death rider varies based on factors like age and health and may increase over time. While these riders can increase premium payments, they provide a valuable financial safety net for unexpected events.

Waiver of Premium Rider

A waiver of premium rider is an optional insurance policy clause that waives insurance premium payments if the policyholder becomes critically ill, seriously injured, or physically impaired. This rider is added to the policy for an additional fee and is typically only available when the policy is issued. The rider is not available to those with pre-existing conditions or physical impairments.

The waiver of premium rider is useful if the policyholder becomes unable to work due to injury or illness. This rider maintains the policyholder's life insurance coverage while they are unable to work, freeing up cash flow for other critical needs. With a whole life policy, the cash value is guaranteed to grow, making the policy a valuable financial asset.

The waiver of premium rider is available on term, whole, and universal life insurance policies. To qualify for benefits, the policyholder must be disabled for a specific period, for example, six consecutive months, before the premium waiver goes into effect. The rider also contains a waiting period during which the holder cannot claim benefits. If the policyholder is physically impaired or injured during the waiting period, they may receive a full refund of the premiums paid.

When filing a claim, the policyholder typically needs to submit a physician's statement and notice from the Social Security Administration (SSA) confirming the disability. The waiver of premiums allows the redirection of limited personal funds to palliative care, personal finances, and living expenses.

The cost of a waiver of premium rider depends on several factors, including the policyholder's age, health, and amount of coverage. For example, a 35-year-old man with a 20-year, $500,000 term life insurance policy may pay about $3 a month for the rider.

Family Income Benefit Rider

A family income benefit rider is an optional add-on to a term life insurance policy. It provides an additional death benefit by paying out the insured's beneficiaries a monthly income stream for the remaining length of the policy's term. This is in contrast to the standard lump-sum payment that is usually paid out to beneficiaries.

The rider is designed to replace the income provided by the insured, and is, therefore, intended for those who are the sole breadwinners of their families. It is also a good option for those who have young families that depend primarily on their income or who feel that managing a lump-sum payout would be overwhelming for their beneficiaries.

The rider is typically purchased for a set period of time, for example, until the insured would have retired. The beneficiary can then choose to receive the monthly payout for the remaining years of the term, or they can receive a lump sum.

The amount of income paid out over time depends on the amount of coverage purchased and the terms of the rider. The rider will usually increase the monthly premium but will extend the coverage of the standard policy.

Accelerated Death Benefit Rider

An accelerated death benefit rider, also known as a living benefit rider, is an add-on to a life insurance policy that allows the policyholder to access a portion of their death benefit early if they are diagnosed with a qualifying illness. This rider is designed to alleviate financial stress during challenging times.

The rider is typically included in the policy at no extra charge, but some companies may charge a processing fee that will be deducted from the amount received. The payout can range from 25% to 100% of the death benefit, and it can be used to cover medical bills, care costs, and other expenses. It is important to note that accessing the accelerated death benefit will reduce the total death benefit for beneficiaries.

The accelerated death benefit rider is particularly useful for those with a family history of chronic or terminal illnesses or those without enough savings to cover unexpected medical expenses. It provides peace of mind, ensuring that the policyholder can receive the necessary medical care and enjoy their remaining time without financial worries.

Some companies, like Aflac, offer this rider as an add-on to their term and whole life insurance plans. It is important to note that each life insurance company has its own rules and limitations regarding the accelerated death benefit rider, and policyholders may need to prove their qualifying condition to access the benefit.

Long-Term Care Rider

A long-term care rider is an 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 type of rider is typically only available for whole and universal life insurance policies.

To qualify for a long-term care rider, you must be chronically ill and unable to perform at least two of the six activities of daily living: eating, bathing, getting dressed, walking, and maintaining continence. In addition, you need a care plan in place with proper documentation.

The payout from a long-term care rider can be taken from the policy's death benefit to pay for expenses such as nursing home care, private nursing, home health services, and other medical care costs that come with aging. The cost of a long-term care rider will depend on the life insurance company and can be priced as a standalone product, adding anywhere from $600 to $800 to your premiums annually.

The big advantage of choosing this option over a standalone policy is that if you don't use the care benefit, the policy pays a death benefit. Standalone policies can feel like a waste if you never file a claim. However, it's important to note that if you tap into your policy's benefits while you're alive, there might not be much left for your beneficiaries when you pass away.

Frequently asked questions