Any type of insurance–whether it’s life, health, homeowner’s, car, business or pet–may offer you riders on whatever policy you’re considering. Riders modify the base policy to add on very specific coverage, such as a large amount of electronics are jewelry for homeowner’s insurance.
When it comes to life insurance there are a few different types of riders that you might see on most policies.
Next up is another easy one–the children’s rider.
Obviously, this one allows you to add a child to be covered under your policy for a lesser amount than yourself.
Often the face value May range from $5,000 to $25,000 depending on which insurance company you’re working with.
Some term life policies will allow the child rider to be converted to an individual policy on the child when they reach age 25 with or without an exam. This is useful for a couple of reasons.
First, should anything happen to your child, having them covered under your policy allows you to get access to cash to pay for a funeral.
Second, some riders do not ask any health questions about the children and will automatically cover them, and can be particularly helpful if you have a child that has any sort of health issues including autism, diabetes, cancer, obesity, pretty much anything else. As they get older in life and they want life insurance, they may not be able to qualify because of their health, so the sooner they can get it the better.
Third, it’s usually pretty affordable to cover kids under a child rider. Usually just a few dollars. It’s a very popular rider.
Some policies offer riders for spouse. Sometimes they have to sign to apply for coverage, and sometimes they don’t, it just depends on the insurance company and how they need your paperwork done.
The advantage to adding your spouse to the policy is simplification and sometimes more lenient underwriting.
In some cases, the spouses are covered for much less then the applicant, but it’s a very convenient way to put an entire family on one policy rather than having multiple policies.
Disability Income Rider
Some life insurance policies will offer a disability income rider.
This means if the covered person becomes disabled and can’t work, the disability rider will pay them a monthly income for a specified amount of time and for a specified benefit.
This is especially useful for self-employed individuals, people who are underemployed, working two jobs and cannot qualify for full-time benefits through the employer, or the employer benefits don’t last long enough (short term disability income that ends after 3-6 months).
The way I look at disability insurance is that it insurance for your paycheck–to make sure that if you can’t work, there will still be money coming in the door to pay for living expenses.
Accelerated Death Benefit Rider
Virtually every whole life policy and many term policies have an Accelerated Death Benefit rider.
This one’s pretty simple. If the covered person receives a terminal medical diagnosis with 12 months or less accelerated death benefit rider allowed the death benefits to be paid out ahead of time to help pay for final expenses and medical costs or whatever else you would need the money for.
Back in the day this was not included in policies, so people who were in this type of situation and needed money right away ended up selling their policies to a third party. The third party continued to pay the premiums on the policy, but pay the carpet person a small cash amount of 1/3 to 1/4 the face value for sending them the cash up front. The third party collect the entire face value and that person eventually dies.
It put covered policy owners into desperate financial situations where they ended up losing a lot of money.
Accelerated death benefit rider is a huge improvement, and there’s no cost. It’s included for free on most policies. Make sure you find out if your policy has the accelerated death benefit rider. It can come in really helpful if you ever need it.
Critical Illness Rider
Because the cost of health insurance and health care continues to skyrocket, critical illness riders are a growing trend.
A critical illness rider typically pays a lump sum benefit when it covered illness is diagnosed. It’s customary for these riders to cover cancer, heart attack, stroke, and a variety of other major issues such as organ transplant, blindness and paralysis.
There are some instances when the critical illness benefits are actually built into the policy itself rather than being a rider, but if that’s the case it would be a major feature of the policy rather than being an add-on.
Critical illness riders provide a high level of peace of mind to know that their life insurance policy is useful for more than just death benefits–that it can provide much needed funds during a major health situation.
Waiver of Premium Rider
Another common rider shared between both whole life and term life insurance policies is the waiver of premium rider.
The Waiver kicks in if the cover person became disabled and cannot work to pay their premium anymore the insurance company will waive the premium for the period of time that you’re disabled so that your life insurance policy does not lapse.
For example, if someone became disabled for 18 months due to a cancer diagnosis and then passed away, this rider would help protect them from losing their life insurance when they needed it the most.
Return of Premium Rider
Some term life insurance policies offer return of premium at the end of the term, whether it’s 10 20 or 30 years.
This means if the policyholder outlives the specified term of the policy, the insurance company is going to cut them a check for every dollar they paid in.
Even though they’ll get all of their premiums back the return of premium rider charges an additional fee for this privilege, which will not be returned to the policyholder.
Even though you’re paying more per month for the return of premium rider. It does not increase the death benefit, so if you passed away during that covered time they’re not going to pay you more than whatever the face value of your policy is.
Long-Term Care Rider
This is frequently available with universal life policies and it’s designed to pay for a nursing home in the event the cover person needs to use that service.
It’s got a specified amount of benefits which can vary, so make sure your agent goes over all the details with you about in which scenarios the rider can be used and exactly how much money it could pay out.
This can supplement, or if comprehensive, replace the need for a standalone long term care insurance policy.
Another type of rider that exists but is not terribly common is an annuity rider.
In more recent years’ annuity riders have been spun off into their own separate products which are sold parallel to whole life products.
The idea is to set up a policy to cover final expenses and a portion of the premiums go to the annuity rider. The annuity rider is like a little bit like an interest-bearing savings account. The interest rate is always guaranteed and often pays above the guarantee. You will never lose money.
The really cool thing is that whatever interest is earned is tax deferred until it’s actually withdrawn. However, the cool tax treatment and higher interest rates come with early withdrawal fees.
If you get an annuity rider make sure you have a long-term investment mentality because you should not be pulling money out of it for quite some time. It’s a great way to build up some additional savings for retirement. If you need access to money on a short-term basis you’re better off using a savings account even though it won’t earn any interest.
Annuity Payout Rider
This is very different from the annuity rider. The annuity rider is about adding a cash accumulation account onto your policy. The annuity payout rider deals with how the death benefits are paid out to the beneficiary.
Some insurance companies offer rider which allows you to determined ahead of time if you want the death benefit paid out has a monthly income rather than a lump sum.
If you’re leaving money to a spouse or child who is fiscally irresponsible, it’s a good way to make sure that your money isn’t wasted in one large purchase. It’s also a good strategy if you have a special-needs child and want to ensure they receive a monthly stipend for care and don’t necessarily have a need for a trust.
Hope this helps you understand the variety of life insurance riders that are available. Not every product offers every rider so if there’s one you’re specifically interested in make sure you tell your agent so they can find you the right product to meet your needs.
If you have riders on your policy and you don’t understand them, you can call your agent and they should be able to explain what they do and exactly why they were sold to you.
Be cautiously optimistic when buying riders and make sure your agent explains to you exactly why they are recommended and how they work.
If your agent hasn’t mentioned any riders make sure you ask if there are any included. Some agents will add on riders and not tell the applicant much about them, so they don’t even know that they have them.