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Understanding Life Insurance Riders

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

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When standard life insurance packages aren’t offering the coverage you need, you can purchase additional security with something called a “rider.”

These are insurance add-ons that provide everything from additional accidental coverage to premium waivers if you get disabled, and they can grant real peace of mind to anyone struggling with the black-and-white terms of regular insurance policies.

The types and scopes of life insurance riders will depend entirely on the company offering them.

But in general, here’s what you can expect.

Free Riders Included With Your Policy

Life insurance policies will almost always include some free riders that enhance your life insurance coverage.

Depending on the life insurance company, free riders can include:

Accelerated Death Benefit Rider

Also known as a “chronic, critical or terminal illness riders,” this option will pay you cash while you are alive if something bad happens and you don’t die.  All policies are a little different so make sure you understand the fine print.

Instead of drowning in hospital bills and struggling to provide for your family, these accelerated benefits can help you through bad financial times.

Taking an accelerated payment before you die will reduce your death benefit so your beneficiary will receive less than the original face amount.

Term Conversion Rider

This option allows you to convert your term policy to a permanent life insurance policy.

Make sure your term life insurance is with a company that has good conversion options.  Some companies only offer one conversion policy that is not as great as their premier permanent portfolio.

If you have had health issues after you purchased your term policy, you can convert to a permanent policy without showing evidence of insurability.

You won’t be turned down for a “preexisting condition” or need a new medical exam.

Riders That Cost You

These are riders you can purchase for additional premium.

Exact costs will vary depending on both your insurance company and the terms of your existing policy, but usually, your options will look like this:

Accidental Death Benefit Rider

Your beneficiary will receive a larger payout if you die as a result of an accident.  These riders are very cheap and can usually double the amount of your original face amount.

If you’re young and healthy your risk of death from natural causes may be low, but you can’t control accidents. This rider could be a good option to consider.

Waiver of Premium Rider

If you become disabled, this rider will pay your premium for you.

If your policy premiums are on the higher side, it’s a nice option to have so that you can make sure your premiums are paid in the event of your disability.

There are health and age qualifiers and the rider itself only lasts until retirement age, typically to age 65.

Child Insurance Benefit Rider

No parent wants to envision losing their child, but this rider will nonetheless prepare you for the worst.

You purchase coverage in monetary “units” (i.e $1000) that would cover funeral costs and, say, fund a leave of absence from work.

You can generally insure any child under 18, and this rider expires when they hit 25.

Estate Protection Riders

If you have a lot of money and assets tied up in your estate, you might be worried about estate taxes burdening your heirs.

This rider can help make that worry go away.

With a complex estate plan, it may not always be possible to have the proper documents set up to have the policy ownership properly titled, and it may not be proper to wait to secure the insurance until the documents are finalized.

In these cases, it is possible that the policies will be taxable in the insured’s estate when they die prior to the expiration of the three-year time frame as set forth by the transfer for value rules.

This rider will increase the value of the policy over a four year or other stipulated period of time, should the policy be subject to estate taxation.

If you don’t have a sprawling estate, you can pretty much ignore this rider, but if you do have one, it’s something you should discuss with your financial adviser.

Return of Premium Rider

With this rider, the insurance company will reimburse all your monthly payments if you outlive your policy.

For example, if you purchase a 10-year term policy and live past the 10 years, you can get back all your money when the term is up.

While some people do like to know they get back their money know that it’s also an expensive rider.

Sometimes this rider can be more than double or triple the cost of standard coverage.

These are just a few of the riders you can employ as add-ons to your life insurance policy.

Remember that every company is different, and terms and cost estimates will vary greatly depending on your age, health, and coverage amount.

Guaranteed Insurability Riders

This rider allows you to buy more insurance without having to go through the underwriting process.

I try to make the underwriting process as painless as possible. And having this rider saves you time filling out forms later, which is a nice bonus.

But that’s not why people buy guaranteed insurability riders.

People buy a guaranteed insurability rider because they know that they may need more life insurance in the future. And having this rider allows you to get more insurance without having to reapply for it, take a medical test, and learn that to get more insurance, their premiums are going to skyrocket.

Bottom Line

Life insurance riders are like passengers in your car.

Picking them up could make your ride enjoyable, or they could be more trouble than they’re worth.

You wouldn’t pick up a suspect-looking hitchhiker (hopefully) just because he’s there.

Likewise, don’t pick up a rider just because it’s an option.

There is an endless number of riders and customizations.

Be sure it’s worth your time before picking one up.

Generally speaking, most of the riders above are worth pursuing if they apply to your unique situation; however, you might want to hold off on a child protection rider or accidental death benefits.

If you’re going to go so far as to add accidental death benefits, why not increase your coverage amount on a standard plan? This would ensure that your family gets the death benefit. Even if you slip and fall at your house.

Likewise, buying a policy for your child could be a more sound decision than adding a child protection rider.

If you’re wondering what riders to consider adding to your policy, give us a call.

You can compare rates for life insurance using our quote form on the side of this page.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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