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
Several life insurance riders are usually included in your coverage at no additional cost. They’ve become so popular that insurance companies consider them necessities rather than perks. Depending on where you buy your policy, free riders can include:
Accelerated Death Benefit Rider
Also known as a “terminal illness rider,” this option will protect you in the event of a terminal illness. Instead of drowning in hospital bills and struggling to provide for your family, you can simply reach into your life insurance policy and pull out the money a little early.
You should be aware, however, that most companies have a limit to how much you can withdraw, usually capping your available funds somewhere between 50-75 percent or $250,000 of your policy.
You also leave a little less for your family after your death with everything you withdraw while still alive. To be able to withdraw money while you are still alive, your doctor would have to deem you as terminally ill, with 12 months to live or less.
Term Conversion Rider
This option allows you to convert your term policy to a permanent life insurance policy. For example, if you’re worried about your health or afraid that a family condition will appear in your check-up one day, a term conversion rider will allow you to switch to permanent, long-standing coverage within your insurance company without having to re-apply.
You won’t be turned down for a “preexisting condition” or need a new medical exam. You can simply broaden the umbrella of your coverage without fear that your new condition makes you ineligible for your old benefits.
These are riders you can purchase for a monthly fee. 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
Most companies will insure you for “any cause,” meaning that you’re covered no matter what may befall you, including disaster, disease, injury and even natural causes. With an accidental death benefit, however, your family will receive an even larger payout if you die as a result of an accident.
If you’re young and healthy your risk of death from disease may be low, but you can’t control accidents, this rider increases your coverage if you die as a result of an accident.
Waiver of Premium Rider
If you become disabled, this rider will transfer the cost of your monthly premiums directly to your insurance company. Essentially, it means you’ll enjoy your remaining life insurance coverage for free.
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 21 or 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, according to Leonard Wright, a CPA, personal financial specialist and wealth management advisor at Northwestern Mutual Wealth Management Company in San Diego.
“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,” Wright says.
“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.
Critical Illness Rider
This rider will provide coverage if you’re ever diagnosed with a serious medical condition and need help with activities of daily living – like dressing, bathing, eating, etc..Similar to long term care insurance, this rider allows you to have some of the benefits of a long term care policy within your life insurance policy.
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. And as much as I try to make the underwriting process as painless as possible, 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 and take a medical test and learn that to get more insurance, their premiums are going to skyrocket.
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, ensuring 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 at the top of this page, or call us at 888-552-6159 to discuss your life insurance needs.