What Are Life Insurance Riders?
B.A. Risk Management
Life Insurance Agent
Once you've selected a life insurance policy, you can customize your policy to meet your individual needs and best protect your family. Life insurance riders let you add on additional protections to make the most of your policy. These extra protections can help you and your loved ones feel more confident in times of crisis like accidents, illnesses, and early death.
What Do Life Insurance Riders Do?
A rider is a term for an addition or change to any legal contract. Life insurance riders generally cover circumstances that your standard policy doesn't or increase benefits paid to your beneficiaries. Some will increase your monthly premiums, but your insurance company might also offer free options.
What are Some Common Riders?
You should check with your life insurance company to see what riders are available for your policy. Not all policyholders qualify for all riders, and not all riders are available in all locations. However, researching the general types of riders and their benefits can help you get an idea of what to ask your insurance company.
Rider types fall into three categories: additional family coverage riders, life event riders, and financial planning riders. Read on to find out more about the most common types of riders.
Additional Family Coverage Riders
Additional family coverage riders are policy add-ons providing coverage and benefits for members of your immediate family.
Child riders pay benefits if a child in your family dies before you do, which can be used to cover expenses related to children's deaths. Child riders can cover all children under your care, including biological children, adopted children, and stepchildren. Most child riders will automatically cover any additional children you have during the term of your policy.
Spousal riders pay benefits to surviving spouses of policyholders. They can be a good choice under certain circumstances. For instance, if your spouse is significantly older or in poorer health than you, adding them to your existing policy via a spousal rider might be cheaper than purchasing two separate plans.
All companies will require a second medical exam to add your spouse to your policy. Keep in mind that if you die before your spouse, your spouse will be left without life insurance. Since they'll likely be much older at this point, a new policy will be much more expensive than if they'd originally purchased their own policy.
Life Event Riders
Life event riders offer additional coverage to help you through major life events that can set you back, including illnesses, disabilities, and long-term care stays.
Accelerated death riders let policyholders use their payout amount before their death to cover medical expenses in the event of chronic or terminal illness diagnosis. You may also see these riders referred to as chronic illness or critical illness riders. All life insurance companies have different rules for what illnesses can trigger payout for accelerated death benefits, but most will pay out for:
- Heart attack
- Major organ failures
Depending on the terms of your policy, you may be able to access your entire policy amount, or only a portion of your policy amount.
Long-term care riders can offset costs associated with long-term daily care in the event of illnesses or declining health. Most medical insurance policies, including Medicare and Medicaid, do not cover costs associated with long-term care. Insurance companies will typically only cover stays in a long-term care facility for a set number of days, often only under certain conditions.
Accidental death riders pay additional benefits to your beneficiaries in the event of your untimely death due to an accident. These riders can be a great help in paying for additional costs associated with accidental deaths. However, keep in mind that not all types of sudden deaths will qualify as accidental death. For example, while death due to a car accident will likely qualify, an acute health condition like a heart attack will not.
Disability income riders pay out benefits in the event that a policyholder becomes disabled and unable to work. Benefit amounts are typically determined as a percentage of your overall policy and paid on a monthly basis.
Waiver of premium
Waiver of premium riders also protect disabled policyholders who become unable to work during the term of their policy. Unlike disability income waivers, these riders cover the cost of your life insurance premiums. If you have this type of rider in place, you won't be liable to pay your insurance premium anymore and will retain your life insurance coverage.
Guaranteed insurability riders are among the most common types of life insurance riders. These riders protect you if your health declines by allowing you to purchase a higher policy benefit amount without needing to start your application process over. If you want additional coverage later in life, you'd otherwise need to reapply for a new policy, and you might not qualify for the policy you want if your health has declined. But if you have a guaranteed insurability rider in place, you'll be able to purchase additional coverage as part of your existing policy.
Additional purchase riders are similar to guaranteed insurability riders, letting you purchase additional insurance benefits at a later date in your policy without having to reapply. But unlike guaranteed insurability riders, which are meant for increasing benefits in the event of declining health, additional purchase riders account for major life events like marriage or childbirth. Under the terms of this rider, you can increase your benefit amount to account for your growing family by paying higher premiums, rather than reapplying for a new policy.
Financial Planning Riders
Financial planning riders give you more flexibility over when and how you'll receive payout from your life insurance policy, letting you and your family access portions of your policy amount before your death.
Return of premium
Return of premium policies are a specific type of rider only available with term life insurance policies. Unlike permanent life insurance policies, the benefit amount of a term life insurance policy has no cash value. But with a return of premium rider, you can use a term life insurance policy to get some cash value out of your policy.
You'll only be eligible to receive the amount that you've paid in premiums over the term of your policy. You'll also be likely to pay a much higher premium if you add this type of rider to your policy. However, depending on your budget, this option can act as a convenient savings plan. For example, a 15-year term policy with $500 annual premiums would pay out $7,500 at the end of the term with this rider.
Family income benefit
Some insurance companies offer family income benefit riders, which can provide monthly payments to family members in the event of the untimely death of the policyholder. You can select the number of years your family will receive this benefit when you add this rider to your policy. This option can be expensive, but it can give you peace of mind that your family will be able to cover monthly bills in the event of your unexpected death.
Shopping for a life insurance policy can be overwhelming if you don't know where to begin with the types of benefits you'll need to give your family peace of mind. By knowing the basic types of riders available to add on to most life insurance policies, you can consider your unique needs and budget and better plan for the future. Check out our free tool to learn more about factors that can affect your premiums and payouts.