Life Insurance Riders
Life insurance riders, such as accelerated benefit riders, family riders and accidental death riders are amendments to a life insurance policy to make it better fit your needs. Attaching a life insurance rider to your policy typically increases your monthly premiums.
What Is a Life Insurance Rider?
Life insurance riders are extra benefits you can add to your basic life insurance policy. They are optional and can vary from insurer to insurer, but the extra terms and benefits of life insurance riders take effect with the rest of the policy.
Riders may allow you to buy extra coverage without being examined by a doctor again, convert a term life policy to a whole life insurance policy or allow a larger payout if you are injured or killed in an accident.
Each rider you add raises the price of your policy, but riders also allow you to tailor a basic policy so that it better fits your needs.
Types of Riders
Some of the main types of riders include accelerated benefit riders, family riders, accidental death and dismemberment riders and benefit structure riders.
But insurers offer a wide range of other riders designed to meet a long list of situations in which you may need to access your benefits.
- Accelerated Benefits Rider
- Allows access to benefits while still alive to address medical or long-term care because of a debilitating illness or injury.
- Accidental Death and Dismemberment Rider
- Pays out more if the insured is injured or killed in an accident.
- Cost of Living Rider
- Allows you to purchase more life insurance each year to keep up with inflation.
- Family Income Rider
- Pays a monthly income to family members if the insured dies.
- Spousal Rider
- Pays a death benefit if your spouse dies.
- Child Rider
- Pays a death benefit if a child dies before a certain age.
- Guaranteed Insurability Rider
- Allows you to buy additional insurance coverage without another doctor examination.
- Return of Premium Rider
- The premiums you have paid on your policy are returned to you at the end of a specific amount of time.
- Term Conversion Rider
- Allows you to convert your term life insurance policy to a whole life insurance policy.
Best Riders for Retirement
Long-term care and chronic illness riders are important life insurance riders to consider as you prepare for retirement. Kiplinger reported in 2016 that a 65 year old couple could expect $240,000 in out-of-pocket health care costs during retirement.
It’s also important to consider that Medicare does not cover long-term care, and these riders can help with costly medical expenses.
These riders pay out if you become disabled, cognitively impaired or seriously ill. You generally need to be hospitalized, need long-term nursing care or home health care. Most pay out if you have the condition for 90 days or more, though chronic illness riders may require the condition to be permanent.
They can also provide tax advantages in certain circumstances if you are placed into long-term care. Talking with a licensed life insurance advisor can help you decide if these riders are right for your retirement planning.
Accelerated Benefit Riders
Accelerated benefit riders allow all or a portion of the policy’s proceeds to be paid out to you if a specific event happens. These may include being diagnosed with a terminal illness, the need for long-term care or an illness or injury that leaves you incapacitated.
Sometimes referred to as living benefits, they may be included in a basic life insurance policy, but are most often offered as an optional rider.
These riders are usually added to universal life insurance policies or other permanent life insurance policies. But some insurance companies have begun making them an option for term life insurance policies. And they may be available in certain group term and group permanent life insurance policies.
- Accelerated Death Benefit Rider
- You will pay your part of the money meant for your beneficiaries if you are diagnosed with a terminal illness.
- Chronic Illness Rider
- Allows you to access benefits early for daily living expenses if you become disabled through a chronic illness.
- Critical Illness Rider
- Allows early access to benefits to treat certain illnesses.
- Long-Term Care Rider
- Provides monthly payments if you need long-term nursing home or home health care.
- Waiver of Premium for Disability Rider
- Your monthly premiums are set aside if you can’t earn a living because of an illness or injury.
More than 3 million Americans are covered by accelerated benefit riders, according to the Alabama Department of Insurance.
Riders That Restructure Your Policy
Some riders allow you to change the structure of your life insurance policy over time. These allow you to increase the benefits you or your beneficiaries will be entitled to, increase the amount of insurance you can buy or convert the type of life insurance you have.
These include guaranteed insurability, term conversion and return of premium riders.
Guaranteed Insurability Rider
A guaranteed insurability rider lets you buy more coverage in the future without having to have another medical exam or providing other proof that you are insurable. This rider can allow you to buy more coverage on a regular basis every few years.
Without the rider, buying more coverage would be more expensive the older you get since your health would likely decline as you age.
Term Conversion Rider
A term conversion rider allows you to convert your term life insurance into a permanent life insurance policy. Term life policies usually set a time limit on converting, so you should make the conversion before the deadline.
Term life insurance only gives you coverage for a certain amount of time. If your life or financial situation changes, a permanent life policy might be a better choice. A term conversion rider lets you do that without having to take a medical exam.
Return of Premium Rider
A return of premium rider allows you to receive all your premium payments back at the end of your term life insurance policy. But your premiums will be much higher over the term. The money will be tax free when it’s paid out.
This payout is sometimes included as a standard benefit in certain policies, but most insurers offer it as an optional rider.
A professional financial advisor can help you compare the return of premiums at the end of your term with the potential for investing the higher premiums.
Family riders allow additional coverage in the event your spouse dies prematurely or in the event a child dies before reaching a specific age.
Spousal riders can provide needed money to replace lost income from a spouse’s death or to help cover added child care costs.
The premiums can be less than that of taking out a separate life insurance policy for your spouse. But the benefits will likely be less than if your spouse had his or her own life insurance.
You should weigh the financial impact of the loss of your spouse’s income when deciding which route to take.
A child rider can cover unexpected expenses from your child’s death. These might be medical and funeral expenses. They are generally inexpensive and one child rider will cover all the children in your family.
Accidental Death and Dismemberment Benefit Rider
Accidental death and dismemberment benefit riders — also called a double indemnity rider — pay a benefit if you are killed or seriously injured in certain types of accidents.
- Death by plane or car crashes
- Death by homicide
- Exposure to the elements
- Heavy equipment related accidents
- Loss of limbs, fingers or toes
- Loss of your vision, hearing or speech
- Loss of use of other body parts
The accidental death part of this rider generally pays out a certain amount to your beneficiaries if you are killed in an accident, but the benefits are usually limited to a certain amount. Generally, the amount is double the policy’s value at the time of death.
The dismemberment portion of these riders typically pay out a percentage for the loss of a particular body part or paralysis from an accident. The amount can vary from policy to policy and from insurer to insurer.
You can buy accidental death and dismemberment insurance on its own, but a rider in your term life insurance policy may be a better bargain. Again, it is a good question to raise with your insurance advisor.
4 Cited Research Articles
- Frailich, R. (2020, April 13). Life Insurance Riders Explained. Retrieved from https://www.forbes.com/advisor/life-insurance/riders/
- New York Department of Financial Services. (2014, August 27). Retrieved from https://www.dfs.ny.gov/consumer/cli_rider.htm
- Alabama Department of Insurance. (n.d.). Questions and Answers on Accelerated Benefits. Retrieved from https://www.aldoi.gov/Consumers/BenefitsQandA.aspx
- Missouri Department of Insurance. (n.d.). Life Insurance FAQs. Retrieved from https://insurance.mo.gov/consumers/life-annuities/FAQ.php