Life Insurance Riders: Empowering Applicants With Customization

Life insurance riders are additional benefits that can be purchased and added to a basic life insurance policy, allowing the applicant to customise their policy to their unique needs and circumstances. Riders can provide several kinds of protection if the policyholder meets their conditions. They are most often associated with permanent life insurance policies, and while they come at an extra cost, the additional premium is generally low. This article will explore the different types of life insurance riders and their benefits, as well as how they can be added to or removed from a policy.

Term rider

A term rider is a type of life insurance rider that allows the policyholder to purchase additional term coverage on top of their permanent life insurance policy. This provides a larger death benefit for a set period of time, usually 10, 15, or 20 years. It is a popular option for parents who want to ensure their families can claim a larger payout if they die prematurely.

It is important to note that term riders typically need to be added at the start of the life insurance policy during the application process. They may also increase the premium, so it is essential to carefully review the terms and conditions before adding a rider to ensure it aligns with your financial goals and needs.

Waiver of Premium rider

A waiver of premium rider is a valuable feature that can be added to a life insurance policy, offering significant benefits to the policyholder. This rider provides protection in the event that the insured individual becomes unable to work due to illness or injury. With this rider in place, the insurance company waives the requirement for the policyholder to pay future premiums while still maintaining the policy's benefits. This means that even if the policyholder can no longer work and earn an income, their life insurance coverage remains active and their beneficiaries will still receive the death benefit. This rider is especially useful for those in high-risk occupations or those with a family history of medical conditions that could impact their ability to work.

The waiver of premium rider typically comes into effect after a certain period of time during which the insured is unable to work. This period is known as the elimination period or qualifying period and usually lasts for about six months. Once this period is over, the insurance company will waive all future premium payments for the remainder of the policy's term. It is important to note that the rider only covers the policyholder's inability to work due to illness or injury; if the policyholder voluntarily leaves their job or is fired, the rider would not apply.

There are some important considerations to keep in mind with this rider. Firstly, the rider usually comes with an additional cost, which is typically a small percentage of the overall premium. This cost can vary depending on factors such as age, health, and occupation. Secondly, the rider may have certain limitations or exclusions. For example, pre-existing conditions might not be covered, and there could be specific requirements regarding the type or severity of illness or injury that would trigger the rider. It is crucial to carefully review the terms and conditions of the rider to fully understand its coverage and any potential limitations.

Another important aspect to consider is the impact of the waiver of premium rider on the policy's cash value. In some cases, the insurance company may continue to treat the policy as if premiums are being paid, which means the cash value could continue to grow. This can be especially beneficial for permanent life insurance policies that accumulate cash value over time. However, the treatment of cash value can vary depending on the insurance company and the specific terms of the policy, so it is important to clarify this with the insurer.

Overall, the waiver of premium rider provides valuable peace of mind and financial protection for policyholders. By ensuring that life insurance coverage remains in force even if the insured becomes unable to work, this rider helps protect individuals and their families from the financial hardship that could result from a loss of income. When considering this rider, it is important to carefully review its terms, conditions, and cost to ensure it aligns with your specific needs and provides the expected level of coverage.

Guaranteed Insurability rider

A guaranteed insurability rider is an add-on provision to a life insurance policy that allows the policyholder to purchase additional coverage at specified future dates without undergoing a new medical examination or providing evidence of insurability. This means that the policyholder can increase their existing death benefit without undergoing medical testing or re-qualification. This rider is most common on whole life insurance and universal life insurance policies, which are permanent life insurance policies.

The guaranteed insurability rider is particularly useful if you are a young, healthy person who can afford permanent life insurance and you want to account for your circumstances changing drastically in the future. For example, you may want to increase your coverage due to an expanding family or increasing income. It also allows you to potentially save money if you think you will want more coverage in the future. The younger you are when you buy life insurance with a guaranteed insurability rider, the more chances you will have to increase your benefit at a low cost.

It is important to note that the guaranteed insurability rider is different from a guaranteed issue life insurance policy, which is intended for seriously ill people and comes with a very high premium. The guaranteed insurability rider may also come with an age limit, often around 40 years old, after which you will need to undergo a medical exam and new underwriting if you want to increase your life insurance payout.

Like with any insurance rider, it is important to read the fine print and understand the potential costs and benefits of adding a guaranteed insurability rider to your policy.

Accidental Death rider

Life insurance riders are additional benefits that can be purchased and added to a basic life insurance policy. They allow the policyholder to customise their policy to suit their needs. Riders are most often associated with permanent life insurance policies.

One of the most common life insurance riders is the Accidental Death rider. This rider provides an additional death benefit if the insured dies as a result of an accident. The additional benefit paid out is normally equivalent to the face amount of the original policy, which doubles the benefit. In the event of death due to accidental bodily injury, the insured's family gets twice the amount of the policy. This is why the rider is also called a double indemnity rider.

If you are the sole provider for your family, an accidental death rider can be ideal as the double benefit will take good care of your family's expenses. It is important to note that many life insurance companies limit the meaning of the term "accident". Future premiums are waived if the insured becomes permanently disabled or loses their income as a result of injury or illness prior to a specified age.

Long-term Care rider

A long-term care (LTC) rider is a living benefit that can be added to a life insurance policy. It allows you to access a portion of the policy's death benefit while you are still alive to pay for long-term care expenses. This is particularly useful for covering the costs of long-term care that traditional health insurance policies do not typically cover, such as home health care, long-term care facilities, or nursing homes.

To qualify for the long-term care benefit, a medical professional will need to certify that the policyholder is unable to perform at least two activities of daily living without assistance. These activities include bathing, dressing, using the bathroom, eating, moving around freely, and maintaining continence. Alternatively, the policyholder may need substantial supervision due to a cognitive impairment, such as Alzheimer's or dementia, to protect their health and safety.

The long-term care rider provides two types of payouts: indemnity and reimbursement. With indemnity payments, you receive a set monthly amount to use at your discretion. In contrast, a reimbursement plan requires you to submit receipts for your monthly bills, and the insurance company will reimburse you for the covered expenses. It is important to note that the payments received through the LTC rider will reduce the policy's death benefit, resulting in a smaller payout for your beneficiaries upon your death.

Long-term care insurance is typically expensive, with the average annual premium charged by leading LTC insurance companies being $950 for a single male, $1,500 for a single female, and $2,080 for a couple, according to 2022 data from the American Association of Long-Term Care Insurance. As a result, LTC riders offer a more affordable alternative to standalone LTC policies, providing flexibility and additional benefits to the policyholder.

Frequently asked questions