In the event of the policyholder’s death, life insurance is a financial tool used to ensure financial stability and well-being of the policyholder’s beneficiaries. To ensure protection, additional coverage can be purchased.
Riders or waivers, for example, are special additions to policy provisions that provide benefits not included in the original contracts. These are excellent methods for streamlining or enhancing the benefits of a basic life insurance policy. (Please keep in mind that riders and waivers may differ from company to company, state to state, and policy form to policy form.) Having said that, always consult your financial advisor and an insurance specialist for the specifics of your coverage.
AIG and New York Life provide the following examples of the most common types:
Accidental Death Insurance:
With this policy provision if the insured dies in an accident, an additional amount is paid to the beneficiary. It’s also known as “double indemnity” because the amount is usually the same as the death benefit of the policy.
Keep in mind that for this provision to be effective, the insured must have died as a result of an accident.
If you become disabled and are unable to work, this rider allows you to waive premium payments on your policy for the duration of your disability. It is also one of the most commonly attached riders to a life insurance policy. (The terms and conditions for this exemption may differ from one company to the next.)
If the policyholder dies within a certain time period, the insurance company will pay the face amount of the policy as well as an amount equal to all premiums paid to date.
Child riders differ from company to company, but they generally allow you to extend coverage to your child on your term life insurance policy. Typically, an additional $2,000 to $15,000 per child is provided. When your child reaches the age of 23, they can convert their term life insurance policy into a permanent life insurance policy. This could be accomplished without the use of proof of insurability. For example, if your child develops health issues as a child, he or she could still purchase permanent life insurance coverage despite having a preexisting medical condition.
The Payment or the Rider:
If a policy is purchased for a child, this rider guarantees that if the policyholder (parent or legal guardian) dies or becomes disabled before the child reaches the age specified in the policy, the insurance company will waive all premium payments until the child reaches the age specified in the policy.
Rider for Disability Income:
If you are unable to work due to illness or injury, this policy pays a monthly benefit for the duration of the disability or for the time period specified in the policy.
Rider for Guaranteed Insurability:
This guarantees that the policyholder will be able to purchase additional whole life insurance at the age specified in the policy without providing proof of insurability (i.e. medical examination). These policies permit the policyholder to renew a policy at the end of its term without providing proof of health.
Rider with Terminal Illness:
If you are diagnosed with a terminal illness, you can use the money from your death benefit to help pay for your medical care.
Rider for Living Expenses:
This enables the policyholder to increase the death benefit of their term life policy (via a premium increase) to match an increase in the cost-of-living index and keep up with inflation. If you buy a certain amount of insurance today, it may be worth less in 10 to 20 years when adjusted for inflation. This rider allows you to upgrade or purchase more insurance to ensure that the death benefit is sufficient to cover your family’s future living expenses and standard of living.
Rider for Family Income Benefit:
If you die, this rider pays your family a monthly income for a set number of years. This rider is advantageous because it will assist in alleviating any financial difficulties your family may face if you are the primary breadwinner.
Rider for Accelerated or Living Benefits:
This enables policyholders who are terminally ill to receive all or a portion of their death benefit while still alive, allowing them to use it for medical expenses or other final financial obligations.