- What do I need to know about life insurance riders?
- November 26, 2013
Life insurance is a financial tool used to secure the financial stability and well being of the policyholder’s beneficiaries, in the event of their death. Additional coverage can be taken out to ensure protection.
For example, riders or waivers are special additions to the policy provision that provide benefits not found in the original contracts. These are good ways to streamline or enhance the benefits of a basic life insurance policy. (Please note that riders and waivers may vary from company to company, from state to state, and from policy form to policy form.) With this being said, always consult your financial adviser and an insurance specialist for the exact terms of your coverage.
AIG and New York Life provides a list of the most common types:
Accidental Death Benefit:
Should the insured die by accident, an additional amount would be paid out to the beneficiary with this policy provision. It’s often referred to as “double indemnity,” because the amount is usually the same as the policy’s death benefit.
Keep in mind that the insured must have died as result of an accident in order for this provision to be effective.
Waiver of Premium:
If you become disabled and can no longer work, this rider allows you to waive premium payments towards your policy during your period of disability. It is also one of the most common riders attached to a life insurance policy. (Terms and conditions for this exemption may vary from company to company.)
Return of Premium:
If the policyholder dies within a specified period of time, the insurance company will then pay the face amount of the policy and an amount that is equal to all of the premiums paid to date.
Child riders vary by company, but generally allow you to extend coverage to your child on your term life insurance policy. Often by providing an extra $2,000 to $15,000 per child. Your child may also convert a term life insurance policy into a permanent life insurance policy when they become an adult, which is typically at the age of 23. This could be done without using proof of insurability. For example, if your child develops health problems while growing up, he or she could still buy permanent life insurance coverage regardless of a preexisting medical condition.
The Pay or Rider:
If a policy is taken out on a child, this rider assures that if the policyholder (parent or legal guardian) dies or becomes disabled before the child has reached the age specified in the policy, the insurance company will waive all premium payments until the child reaches that age.
Disability Income Rider:
If you cannot work due to illness or injury, this pays a monthly benefit for as long as the disability lasts or for the specific time frame laid out in the policy.
Guaranteed Insurability Rider:
This is a guarantee that the policyholder can purchase more whole life insurance at the age specified in the policy without proof of insurability (i.e. medical examination). These policies allow the policyholder to renew a policy at the end of its term without proof of health status.
Terminal Illness Rider:
If you are diagnosed with a terminal illness you can take the money from your death benefit to help with medical expenses for your care.
Cost of Living Rider:
This allows the policyholder to increase the death benefit of their term life policy (with an increase in premium) to match an increase in the cost-of-living index and keep up with inflation. If you purchase a certain amount of insurance today, when you adjust for inflation, it may be worth less in 10 to 20 years. This rider allows you to upgrade or purchase additional insurance to assure that the death benefit is adequate to cover your family’s living expenses and standard of living in the future.
Family Income Benefit Rider:
If you die, this rider provides a regular monthly income to your family for a certain number of years. This rider is beneficial because it will help alleviate any financial difficulties your family may have if you were the primary breadwinner.
Accelerated or Living Benefits Rider:
This allows policyholders who are terminally ill to collect all or part of their death benefit while they are still alive so they can use it for medical expenses or other final financial obligations.
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