The 8 Most Common Life Insurance Riders
Buying life insurance coverage to protect your loved ones financially is usually a smart move.
However, purchasing the most straightforward policy you can find may not always be the best idea.
Luckily, you can customize and add to your policy to ensure the proper coverage.
What is a Life Insurance Rider?
When you initially buy a life insurance policy, you may be able to add riders to it. A life insurance rider is an addition to the standard policy that gives you additional coverage.
As you’d expect, extra benefits typically come with higher insurance premiums, too.
You’ll have to analyze your situation and each type of rider to determine if it is a good deal for you.
While life insurance riders normally do the same things from insurer to insurer, the specific details may be different.
You should always completely read the specific riders in any policies you’re considering. Then, you can understand precisely how they work.
Life insurance rider options may vary depending on the type of life insurance policy you have, too.
Some may be available on both term life insurance and permanent life insurance policies. Others may only be available with specific insurers on particular policy types.
Here are some of the more common life insurance riders available and how they generally work.
1. Accelerated Death Benefit Riders
This rider allows you to access part of the death benefit payment before you die if you become terminally or critically ill.
Usually, a doctor must certify you have a short time frame left to live, such as six months, and have a qualifying terminal illness.
The definition of what qualifies will depend on your specific rider.
Reduced payout for beneficiaries
The accelerated payout may reduce the amount of money your beneficiaries receive. The reduction may also include interest charges.
This rider may make sense if you feel you’ll have a hard time covering the end-of-life care costs.
Reducing the death benefit payout to beneficiaries could leave them in a bad financial position.
These riders are often included at little to no cost. Double-check with your insurer to be sure.
2. Accidental Death and Dismemberment Riders
If you die in an accident or suffer dismemberment of an arm, leg, finger or toe, this rider could pay out additional benefits.
Those who don’t take part in risky activities or don’t have dangerous jobs may not have much use for this type of rider.
Even people that do take part in risky activities normally find these riders are incredibly restrictive.
If you don’t meet the exact definitions as outlined, you won’t get paid.
These riders add cost to your policy, as well.
3. Child Insurance Riders
A child insurance rider may be able to cover your children with life insurance until they reach a certain age. At that point, they may be able to convert it to their own policy.
This is typically sold based on the fear that a child may not be insurable later in life.
In that case, this insurance rider may be the only insurance they can get.
However, children don’t have much need for life insurance.
Unless you’d have trouble covering any funeral costs and final expenses, the insurance payout doesn’t serve much purpose.
These riders aren’t generally expensive. That said, there isn’t a point in adding any extra cost if the benefits aren’t useful for you.
4. Guaranteed Insurability Riders
A guaranteed insurability rider may make sense if you don’t need much life insurance now but may need more coverage in the future.
This rider usually allows you to purchase a pre-set amount of additional life insurance at particular times in the future.
Because the rider guarantees insurability, you won’t have to take a medical exam. You won’t have to answer more health questionaires to secure this coverage, either.
Adding extra coverage will increase your premiums, though.
Unfortunately, this rider is usually only for permanent life insurance policies.
5. Long-Term Care Insurance Riders
A long-term care rider may provide a benefit payment prior to your death to cover long-term care costs.
You must meet certain requirements, outlined in your rider, for this coverage to activate.
These riders aren’t cheap. Neither are long-term care costs.
Some riders may pay out more than your death benefit if your long-term care costs exceed them.
Money used to pay for long-term care will lower your death benefit. The exact way this works depends on how your rider is written.
Using a long-term care insurance rider may leave your family without much needed money after you pass away.
For this reason, it may be better to consider a standalone long-term care insurance policy.
6. Return of Premium Riders
A return of premium rider pays you back your premiums at the end of a term life insurance policy as long as the death benefit doesn’t pay out.
This may seem like a smart way to get what seems like free life insurance. That’s not how it works.
These riders increase the cost of a typical term life insurance policy.
To make things worse:
You may not get back the full amount you paid, either. These riders may exclude administrative fees and other costs that you have to pay as part of your policy.
While you may get some of the premium payments you paid back at the end of the policy, they aren’t often adjusted for inflation.
This means the money you get back won’t likely be worth as much as the money you paid in.
For instance, you may pay $100 today and get $100 back 30 years from now. However, that $100 30 years from now may only have 1/3rd of the buying power of the $100 today.
For this reason, these riders don’t typically make much sense.
7. Term Conversion Riders
A term conversion rider gives you the option to turn your term life insurance policy into a permanent life insurance policy.
You must do this during a time period explained within the rider.
Part of this may be based on your age. It may also be limited based on a certain number of years from when you take out the original policy.
Premiums will increase
When you convert the policy with this rider, you normally don’t have to take a medical exam. Your premiums will increase, though.
This could give you an option to get permanent life insurance if some event makes you uninsurable after you get the original policy.
Even so, most people know upfront whether they want term or permanent life insurance coverage.
For someone looking for cheap term life insurance to fulfill a specific purpose in their financial plan, adding extra riders and costs doesn’t generally make sense.
8. Waiver of Premium Riders
A waiver of premium rider protects you in certain cases where you may not be able to make your life insurance premium payments.
In particular, this rider normally kicks in and waives premiums if you become totally disabled and unable to work.
The rules of what constitutes a qualifying disability vary.
They’re often strict. You must meet them exactly for the benefits to kick in.
There may be a waiting period, such as three to six months. During this time, you must still make premium payments before the waiver starts.
Read your policy to understand exactly how your waiver of premium rider works.
If you decide to get this rider, make sure you have a way of paying your life insurance premiums until the waiver kicks in.
If you don’t have this money set aside, your policy could lapse before the waiver of premium rider is able to help you.
What to Consider When Choosing Riders
Riders can add benefits, but they aren’t always worth the costs.
In some cases, other products may do a better job of protecting you.
For instance, disability insurance may be a better option than a waiver of premium rider.
In other cases, the added benefits may not add value in your specific circumstance. A person that never plans to have children wouldn’t benefit from a child insurance rider.
Carefully consider what the rider is supposed to offer.
Then, consider if it helps your situation.
Before you add it to your policy, decide whether other products may better solve the issue.
Compare the price of the rider to your other options. Only then can you make an educated final decision.
Consult a Professional
Insurance salespeople know the ins and outs of how riders work. However, they’re paid commissions by life insurance companies when they sell you a policy.
If a rider adds a higher price tag to a policy, the salesperson may be getting paid a bigger commission.
Due to this conflict of interest, an insurance salesperson may not be the best person to ask whether you need a rider or not.
It’s in their best interest to say yes, assuming it increases their commissions.
Instead, consider consulting a fee-only fiduciary financial planner.
They can examine your situation. After that, they can recommend which riders make the most sense based on your complete financial picture.
You have to pay these advisors to work with you. That said, you know their advice is in your best interests.
After all, they aren’t getting commissions. They are being paid directly for their expert advice.