MoneyLife

What Is a Life Insurance Rider?

By Marc Guberti
life insurance rider

When you buy life insurance, policyholders will give you the option to add perks to your plan. These perks, known as life insurance riders, add extra layers of protection to your policy. However, each life insurance rider will increase your premiums as well. 

How does a life insurance rider policy work?

Understanding life insurance riders becomes easier once you understand how life insurance works. You can only add a life insurance rider to your policy when you are initially buying your policy. 

Once you start paying your premiums, you can’t add any life insurance riders to your policy. Life insurance riders strengthen your policy, and while you may not need them right now, you could benefit from those riders in the future.

However, like we mentioned, you can only add a life insurance rider at the start of the policy. The rider may come in handy later in life, so it’s important to think ahead when considering a policy and adding riders with your future self in mind. 

Should I add a long-term care rider to my life insurance policy?

A long-term care rider allows you to pay monthly living expenses with a portion of your death benefit. A policyholder can only use this rider if they need long-term care. 

The insurance company will send a medical professional to verify the policyholder’s conditions. Suppose the medical professional recognizes that the policyholder struggles to perform daily activities, has a cognitive impairment, or needs considerable assistance or supervision. In those cases, the insurer will permit the policyholder to use their long-term care rider. 

Which type of rider will waive the premium?

Each rider carries different benefits. One of those riders, known as the waiver of premium rider, allows you to waive premiums in specific scenarios. 

If a policyholder becomes significantly ill, critically injured, or disabled, the waiver of premium rider can put a pause on premium payments. This rider would protect you from a worst-case scenario because insurers can cancel your policy if you stop paying your premiums. 

Your beneficiaries would then lose out on the death benefit, and your premium payments will have been all for nothing. The waiver of premium rider will decrease the likelihood of that scenario coming true, but you can’t use general financial struggles as a reason to claim this rider.

Is the chronic illness rider a lifetime insurance rider?

A chronic illness rider allows you to tap into your death benefit if you are diagnosed with a qualifying chronic illness. Chronic diseases will negatively impact your ability to work, and receiving financial support from your policy while still alive will make life a little less difficult. Some insurers add this rider to the policy at no extra cost to the policyholder. 

What is the waiting period on a waiver of premium rider in life insurance policies?

Most policies enforce a six-month waiting period on a waiver of premium. This rule prevents policyholders from only claiming life insurance when they can qualify for the waiver of premium rider. 

Which rider provides coverage for a child under a parent’s life insurance policy?

The child term rider allows a policyholder to provide coverage for their child. This rider provides the parent with a payout if the child dies at a specified age before maturity. Once the child matures, this rider can be converted into a life insurance policy for that child.

8 types of life insurance riders

Guaranteed insurability rider

You can purchase a higher death benefit within a specified window without sitting for any medical exams. This rider is helpful if you incur a medical condition at some point amid the duration of your policy and decide to give your beneficiaries a higher payout.

Waiver of premium rider

Under exceptional circumstances, your premiums can be waived. That way, you don’t have to worry about missing premium payments and therefore losing the payout from your policy.

Accidental death rider

If you die in an accident, your beneficiaries will receive a higher payout, which can sometimes equate to twice the amount of the original payout.

Family income benefits rider

If the policyholder dies, this rider will provide the holder’s family with a steady stream of income. When selecting this rider, you must determine how many years you want your family to receive income for in the future.

Accelerated death benefit rider

An accelerated death benefit rider is when you develop or are diagnosed with a terminal illness, this rider can allow you to tap into your death benefit while you’re still alive. Look into what your insurer defines as a terminal illness. Some insurers will add this rider to a policy free of charge.

Long-term care rider

The policyholder will receive monthly payments if they need long-term care, like staying at a nursing home.

Return of premium rider

You’ll pay extra premiums upfront. However, all of your premiums will be returned to you in full at the end of your policy’s term. This rider is primarily helpful when paired with term insurance.

Child term rider

A child term ride policy is someone who receives a death benefit if their child dies at a certain age. Once the child reaches the age of maturity, the policyholder can convert this rider into permanent insurance. 

Important life insurance rider factors 

Life insurance riders add more perks to your policy. Understanding why you need life insurance and what you want your policy to do will help you make better decisions when thinking about life insurance riders. Consider these factors before deciding which riders to add to your policy.

Higher premiums

Life insurance riders boost your premiums. If these riders negatively impact your ability to pay your premiums, you will risk losing your policy. As beneficial as riders can be, it’s not worth adding a few riders if you’re worried about how you’ll pay the higher premiums that come with additional riders.  

Your insurance plan

A life insurance plan only gives you one chance to add riders to your plan. However, term insurance will expire, giving you a second chance to add riders when your policy expires. If the term insurance policy expires when you are relatively young, riders that cater more to the elderly, like a long-term care rider, may not make the most sense for you.

Future expenses

You might have no problem paying off the extra premiums, but your expenses won’t stay the same forever. If you plan to raise children or send them to college, your future expenses will be much higher than your current expenses. Weigh these potential expenses when deciding how much you can afford in premiums each month.

The death benefit

Instead of paying extra premiums as the result of a few riders, you can pay extra premiums for a higher death benefit instead. This can leave more money behind for your beneficiaries to inherit, although not adding any riders to your policy can result in an additional risk for the policyholder. 

Your risk level

If you work a physically demanding job where you are more likely than not to sustain a bodily injury, adding riders to your policy will make even more sense. Think about your likelihood of utilizing each rider before agreeing to add them and increasing your premiums as a result.

Advantages of life insurance riders 

Life insurance riders add extra layers of protection to your policy. The perks of these riders can range from a higher death benefit to cash flow and waived premiums.

Disadvantages of life insurance riders 

The main disadvantage of life insurance riders is that they increase the cost of your monthly premiums. Life insurance riders also offer no flexibility, seeing as you can only add them when you initially purchase your life insurance policy. 

As such, you’re out of luck if you realize midway through your policy that you need a certain rider. At that point, it’s too late. 

Accidental death and dismemberment vs life insurance

The payout from an accidental death and dismemberment policy is limited to severe injuries and deaths caused by accidents. Life insurance covers even more types of deaths, but the costs of the monthly premiums required to retain the policy are higher, too.

Riding your way through life insurance

Life insurance riders provide you with a financial safety net that will protect you from dire situations. Most riders will increase the price of your monthly premiums, but the investments are worth it if you can benefit from those riders.

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