Life Insurance Riders: Applicant Flexibility And Customization

Life insurance riders are add-ons to a life insurance policy that allow the policyholder to customise their coverage and access the money from their death benefit while they are still alive. Riders can be added to a policy when it is purchased, and they often come with an additional cost. One type of rider that allows the applicant to have excess coverage is the term rider. This rider can be added to a whole life policy to provide additional term coverage, resulting in a larger death benefit for a set period. It is important to note that not all insurance companies offer the same riders, and some riders may only be available with certain types of life insurance policies.

Waiver of Premium Rider

A waiver of premium rider is an optional life insurance add-on that allows the applicant to stop paying their premiums if they become critically ill, seriously injured, or physically impaired. This ensures that the policy does not lapse if the applicant is no longer able to work and make payments. The waiver of premium rider can be added to new or existing policies for an additional fee, which typically increases the premium by 10% to 25%.

The rider usually includes a waiting period, during which the benefits cannot be claimed. If the applicant becomes impaired or injured during this time, they may receive a full refund of the premiums paid. Once the waiting period is over, the insurance company will waive the premium until the applicant's condition resolves or indefinitely if the disability is permanent. If the condition improves but reoccurs or another qualifying condition arises, the rider can be used again.

To qualify for a waiver of premium rider, the applicant must meet certain health and age requirements. They cannot have any pre-existing conditions or physical impairments, and younger people without high-risk jobs or hobbies are more likely to be approved. Most insurance companies do not offer this rider to anyone over the age of 65.

To activate the rider, the policyholder must file a claim with their insurance company, providing a statement from their doctor and a notice from the Social Security Administration (SSA) confirming their inability to work due to their disability. The waiver of premium rider can provide financial protection and peace of mind for individuals and their loved ones, ensuring that their life insurance policy remains active even during times of illness or injury.

Long-Term Care Rider

A long-term care (LTC) rider is an add-on to a life insurance policy that provides 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, which include 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 your policy's death benefit to pay for expenses that traditional health insurance doesn't cover, such as nursing home care, private nursing, home health services, and other medical care costs.

The cost of adding a long-term care rider to your policy will vary by insurer and type of life insurance. When shopping for a life insurance policy, ask your prospective insurer for a quote with an LTC rider attached so you can compare rates between different providers.

It's important to note that every payment received under a long-term care rider will reduce your death benefit, resulting in a smaller payout for your beneficiaries upon your passing. Therefore, it's crucial to carefully consider your options and read the terms and conditions before purchasing a life insurance policy with an LTC rider.

Return of Premium Rider

A Return of Premium Rider is an optional add-on to a term life policy that allows you to reclaim your premium payments if you outlive the policy term. Without this rider, if you're still living when the policy term ends, your policy will simply expire without paying a benefit.

With a Return of Premium Rider, you can receive a refund of some or all of the money you spent on policy payments, depending on your policy. This is usually paid in the form of a lump-sum benefit. This rider typically refunds the total premium you paid for your base policy and the rider itself, but it may not refund fees or the premium you paid for other riders on your policy. It's important to note that missing payments can disqualify you from receiving the benefit.

The benefit amount can be substantial. For example, if you purchase a 30-year term life insurance policy with a Return of Premium Rider and a monthly payment of $50, you may receive $18,000 back from your insurer if you're still living when the term ends and you haven't missed any payments ($50 x 360 monthly payments = $18,000).

The money refunded from your term life insurance may not be taxable unless there is a gain. However, it's recommended to consult a financial advisor to understand the potential tax implications. Additionally, the refund may not include fees and other riders attached to the policy.

A Return of Premium Rider is typically suited for risk-averse individuals who can afford the increased monthly premium and want financial protection for their loved ones. It provides added security when purchasing life insurance. The rider can also be beneficial if the timing of your return of premium aligns with your retirement age, providing a financial boost around the time you stop earning an income.

Child Life Insurance Rider

A child life insurance rider is an add-on to a life insurance policy that pays out a death benefit if one or more of your children passes away. This type of rider typically covers all of your children, including future children, and can be added to a new or existing life insurance policy. The cost of adding a child rider is usually just a few extra dollars a month, making it a cost-efficient way to insure your children's lives without purchasing separate policies for each.

To qualify for this add-on, your child needs to be between 14 days and 18 years old, though some policies may cover children up to 19 years old. The coverage will last until their 25th or 26th birthday, or until the policyholder's 65th birthday, whichever comes first. When the policy is about to expire, your child can convert the insurance rider into a standalone, individual policy without needing a medical exam or approval process.

The death benefit provided by a child rider is typically designed to cover funeral expenses, medical costs, and income gaps while grieving. It is important to note that the rider's benefit is separate from the base plan's accelerated death benefit. Additionally, the purchase of a child rider may be limited to new policies and may not be available in all states.

The benefits of adding a child rider include affordability, ease of conversion to a permanent policy, and protection for your children's future insurability. However, there are also drawbacks, such as limited coverage amounts and premature termination of coverage due to the policyholder's age or policy termination.

Guaranteed Insurability Rider

A guaranteed insurability rider (GI) is an optional add-on to a life insurance policy that allows the policyholder to increase their coverage without undergoing a second medical examination. This means that the policyholder can avoid answering health questions or submitting to blood and urine tests, which are typically required when applying for additional coverage. The rider is beneficial for those who anticipate a significant change in their health or life circumstances, such as marriage or the birth of a child, which would increase the amount of coverage they need.

The GI rider is attached to specific life insurance policies and enables the policyholder to purchase additional insurance at specific dates in the future, known as "option dates". These option dates can be predetermined calendar dates, usually every three to five years from the beginning of the policy, or they may be tied to significant life events, such as getting married or having a child. The policyholder must keep track of these option dates as they are responsible for exercising their right to purchase additional coverage within a set window of time, typically 30 to 90 days.

While the GI rider provides the opportunity to increase coverage without a medical exam, it comes at an additional cost. The policyholder will pay higher premiums for the added flexibility and benefits that the rider provides. It is important to note that the GI rider is different from guaranteed issue life insurance, which is intended for seriously ill individuals and comes with a very high premium.

The GI rider is most commonly found on permanent life insurance policies, such as whole life and universal life insurance, as these policies are designed to provide coverage for the long term. By contrast, term life insurance is meant to cover the policyholder for a set period, making the GI rider less beneficial in this context.

When considering a GI rider, it is essential to review the specific terms and conditions offered by the insurance company, as they may vary. For example, some riders have age cut-offs, after which the policyholder can no longer increase their coverage. Additionally, the rider may end at a certain age, and there may be a maximum limit to the total benefit that can be reached.

Frequently asked questions