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Life insurance is designed to provide a financial safety net for your loved ones in case you pass away. There are ways to add additional features to your life insurance policy that let you customize it.
Life insurance riders are add-ons to your life insurance policy that provide extra coverage or even ways for you to access the money from your death benefit while you’re still alive.
These riders can help personalize your policy to better suit your needs. Here are a few examples of benefits life insurance riders can provide:
Some life insurance riders increase the cost of your life insurance premium, but some are added for no charge.
Before you purchase a life insurance policy, be aware of the possible options for extras and their associated costs.
There are many kinds of life insurance riders, and their availability can vary depending on the life insurance company and the type of life insurance policy. Here are some of the most common.
Also called a life benefit rider, this is an important rider that’s often automatically included these days in life insurance policies at no extra charge. It lets you take an advance on your own death benefit money if you’re diagnosed as terminally ill. Check the policy for the definition of terminal illness, which could be defined as a life expectancy of one year or less.
Depending on the company, you may be able to take all or a portion (such as 80%) of your death benefit amount.
Having this money could become crucial in paying medical bills or other expenses without taking money from savings that a spouse needs. You can use the money for any purpose. You don’t have to tell the insurer what you’re using it for, and you don’t have to provide receipts for any expenses.
If you’re using an accelerated death benefit rider because of terminal illness, the money will be tax-free.
Some insurers have variations on accelerated death benefit riders that let you take the money for critical or chronic illnesses. The rules will be defined in the policy. For example:
The trade-off is that your beneficiaries receive only whatever amount is left in the death benefit.
A waiver of premium rider allows you to stop paying life insurance premiums if you become disabled. The waiver applies to both the base life insurance policy and any riders. Read the policy carefully, as the definition of “disability” can often be very restrictive. Many policies define disability in a way that only total and permanent disability would qualify you to use the rider.
This type of life insurance rider lets you take money from the death benefit of your own policy if you need to pay for long-term care. It’s often much less expensive to buy this rider than to pay for a stand-alone long-term care insurance policy.
Taking money from the death benefit will lower the amount that your beneficiaries receive.
A long-term care rider may cost several hundred dollars a month, because any potential claim can be costly to the insurer.
This is a rider that lets you convert a term life insurance policy to a permanent life insurance policy. This is useful if your health has declined but you want a permanent life insurance policy and are worried about the high price. Each policy is different, but you may be able to convert only part of the term life policy to permanent coverage, while maintaining a smaller term life policy.
Your life insurance agent can tell you what your permanent life insurance choices would be, and the new cost if you convert term life to permanent life coverage. Your choices will vary depending on what the life insurer is offering. You may find you’re better off shopping for a new policy, depending on your health.
Here’s an overview of some other life insurance riders that may be offered by some life insurance companies for different types of life insurance policies.
Some parents get life insurance for children by adding a rider because it would provide a small benefit to cover burial expenses, such as $10,000.
Child life insurance riders are generally very inexpensive. That’s because the coverage amount is usually low, and children have a statistically low chance of death. Some child life insurance riders allow you to convert the rider into a permanent life insurance policy for the child when the rider expires.
If you become disabled, this type of rider typically offers a monthly payout that’s either a percentage of the death benefit, maximum payment per month or a percentage of monthly gross income.
If you need to surrender your life insurance policy within the first few years it’s in force, this rider can adjust the charges to offer higher surrender amounts.
If your life insurance death benefit goes to your estate, this type of life insurance rider can help offset estate taxes that may be due.
Only found on permanent life insurance policies, such as whole life insurance, universal life insurance and indexed universal life insurance, this rider allows you to increase your death benefit without going through a full application process again. It’s useful if you expect your financial obligations to increase in the future, since you can raise your benefit without having to qualify with a new life insurance medical exam or health questions.
Rates for the additional insurance will be based on your current age.
In some cases, this type of rider ensures your policy won’t lapse if cash value dips below a certain level for some types of permanent life insurance policies. In other cases, it may prevent the policy from lapsing or terminating during the rider period if certain premium requirements are met.
This type of life insurance rider avoids the laps of a policy due to excessive loan balances exceeding cash values within the policy.
If you have a return of premium rider, you are refunded the premiums paid if you outlive the term of your life insurance policy.
A spouse rider is a way of adding a limited amount of insurance to your policy that will cover your spouse. It costs less than taking out an entire individual life insurance policy but may not be sufficient coverage.
The cost of a life insurance rider depends on the specific rider and the company.
Some riders like accelerated death benefits may cost little to nothing, while another rider like return of premium will cost much more since that rider will return the premiums paid if the policyholder lives to the end of a term life insurance policy.
Adding or Dropping Insurance Riders
You should make any rider purchases when you buy the base life insurance policy. Adding a life insurance rider later will almost always require you to go through the underwriting process again, and likely will require another life insurance medical exam. Since the insurance company is increasing their chance of paying you from a rider, they want to verify your health.
Conversely, most insurance companies will allow you to drop a rider from a policy simply by filling out a form to authorize its removal.
Many life insurance needs are straight-forward, and the need for additional riders is limited. But, depending on your personal circumstances, life insurance policy riders may be a cost-effective way to get extra coverage you want without buying a separate insurance policy.
There are two questions to consider for any life insurance rider:
Any rider will be listed separately on your life insurance policy so you can see the annual cost. As with other insurance products, the cost is typically lower when there’s less chance of a claim.
Try to weigh the rider’s cost with the financial risk when determining if a rider is worth it. What’s the cost of the rider vs. the potential benefit if you use it?
If you have unique circumstances, either health or financial, it’s worth getting a professional opinion from a financial advisor or life insurance agent. A good agent should be able to walk through your concerns and advise on whether any riders are worthwhile for you.