Life Insurance Riders – What Are They And 12 Common Riders?

If you have purchased a life insurance product, you likely have been offered or seen riders attached to the policy. A life insurance rider is an optional additional feature to your base life insurance product that provides supplemental coverage or benefits. Riders can come standard at no explicit charge or be optional add-ons for an additional fee.

Riders allow you to further customize your insurance policy and provide several kinds of supplemental benefits at a relatively low cost. Common riders protect you from losing a policy if you become disabled or pay an additional benefit if your death is due to an accident.

What are the different types of riders and are they right for you?

What Is A Life Insurance Rider?

A life insurance rider adds additional benefits or features onto your base life insurance product. They can help you further personalize your policy to better fit your needs.

Riders can be included as part of the policy for no explicit charge or be optional features you elect to add-on for an additional fee. There are many different types of riders and they can be valuable additions to your coverage.

A rider gets its name as it is a policy add-on that ‘rides’ on the main policy. Riders are not available as stand alone products.

What is Life Insurance?

Life insurance provides a death benefit to your named beneficiary upon your death. In exchange for the coverage, you pay premiums to the insurance company. Life insurance is a crucial component of the protection category in your 5 pillars of personal finance.

There are many different types of life insurance with the primary types being term insurance and permanent insurance.

Term insurance is coverage for a limited period of time and has a maturity date. During your coverage period, the premiums paid and death benefit are fixed. Additionally term insurance doesn’t have any cash value component. Generally, if you die after the coverage period, you get no death benefit, although there are ways to extend your term coverage.

Permanent life insurance remains until you die as long as you pay the required premiums. It typically has a cash value component that is money you can access. Since you can’t outlive your permanent policy and you get a cash value account, permanent insurance typically costs 5 to 15 times as much as a similar sized term. There are many types of permanent insurance, and it is much more complex than term..

What Are Common Life Insurance Riders?

There is nearly unlimited different riders that can be added to life insurance products. Most riders are for permanent insurance products, but term products also have some unique riders.

Twelve Common life insurance riders include:

1. Guaranteed insurability
2. Waiver of premium
3. Accidental death
4. Paid-up additional (PUA)
5. Accelerated death benefit
6. Long-term care (LTC)
7. Child term
8. Term conversion
9. Disability income
10. Cost-of-living adjustment (COLA)
11. Critical or chronic illness
12. Family Income Benefit

However, this is not an exhaustive list as there are many other types of riders available and new ones created everyday.

1) Waiver of Premium Rider

A waiver of premium rider will waive future premiums if the insured becomes permanently disabled or loses their income due to injury or illness. There may be age limits to when features of this rider applies, like only waiving premiums before retirement age.

Disability can be crippling to household finances and this rider ensures that you don’t lose your life insurance coverage due to an inability to pay. The definition of disability may vary between insurers and riders so be familiar with your policy documents.

In case of a temporary disability, once you are able to work again, you may have to resume premium payments at that time.

2) Guaranteed Insurability Rider

This rider allows for the optional purchase of additional insurance coverage without additionally medical underwriting. There is generally a specified period of time that this rider is good for and a max additional coverage that can be purchased.

If you have a major life event like marriage, a new child or dependent, or a significant increase in income, this is a valuable way to add additional coverage. Particularly since health tends to decline with age, so not having to undergo underwriting and keep your same health class can result in coverage at a lower price than if you purchased a new product at a worse risk class.

3) Accidental Death Rider

Accidental death benefit riders pay out an additional death benefit amount if the insured dies due to an accident. Often, an accidental death benefit rider will double the payout to your beneficiary. Therefore it is often referred to as a double indemnity rider.

Accidental death riders often require the death to occur close to the accident, typically within 90 days. Additionally there are exclusions that often include accidents due to mental illness, drugs/alcohol, rioting, and suicide.

Since accidental deaths can be sudden and jarring, and you may not have been able to fully prepare your finances, having a larger benefit helps your loved ones.

Accidental death riders are different than stand alone accidental death & dismemberment (AD&D) insurance that covers fatal & non-fatal injuries. They are also different than a stand-alone accidental death benefit policy that only pays out for accidental death with no life coverage if you die from non-accidental causes.

4) Paid-Up Additional Insurance Rider

Paid-up additional insurance is a rider on a whole life policy that allow for reinvesting the policy dividend into fully-paid up insurance. Each dividend will buy a small amount of additional coverage with a single premium. Each paid-up addition is then eligible for future dividends which allows for faster death benefit and account value growth.

This works similar to a dividend reinvestment plan (DRIP) on dividend paying stocks. Each time a policy dividend is reinvested into the policy, that additional unit then earns future dividends.

Over the life of a whole life policy, paid-up additions can significantly increase your death benefit, cash value, and future dividends. And the best part, since you are fully buying each additional unit, your premiums don’t increase under this rider.

5) Accelerated Death Benefit Rider

An accelerated death benefit rider allows an insured to receive their death benefit while still alive if diagnosed with certain terminal or debilitating conditions. Often accelerated death benefit riders will pay a set amount on a schedule and if you die before receiving the entire death benefit, the remainder is paid to your beneficiary. This rider is there to help you with end of life care, which can be very expensive.

Accelerated death benefit riders may have a waiver of premium embedded in them.

The cost of accelerated death benefit riders tends to be small since a terminal diagnosis indicates the insurance company would be paying the death benefit our soon anyway. But every rider has its own definition of ‘terminal illness’ so refer to your policy documents before purchasing the rider.

6) Long-Term Care (LTC) Rider

Long-term care riders are similar to accelerated death benefit riders. They are sometimes called ‘accelerated death benefit for long-term care service’ riders. LTC riders allow you to access your death benefit while still alive if you have a chronic illness or are unable to complete certain daily living actions. This typically means tasks like bathing, eating, dressing, or using the bathroom.

LTC riders generally provide you money that you can use how you see fit and are divided into 2 types:

• Indemnity: Pays out a predetermined benefit at regular intervals once you qualify regardless of your expenses
• Reimbursement: Reimburses you for expenses you incur up to a max for a given period

A long-term care rider is different than a stand alone long-term care insurance policy. Stand alone LTC does not have a death benefit and often has richer LTC coverage. Therefore a LTC rider may not replace your need for a separate LTC policy, but can be a much cheaper alternative to fill some of the need.

Additionally, there is a lot of overlap between an LTC rider and an accelerated death benefit rider. The difference between the 2 tends to be the conditions that qualify. LTC riders cover many conditions that may not be immediately terminal, like a debilitating stroke that leaves you requiring permanent medical assistance. As always, check the rider documents to see what conditions qualify.

7) Child Term Rider

Child term riders allow you to add small death benefit coverage for your children instead of getting separate policies for them. These riders usually allow between $5,000 to $30,000 of coverage and cover the child till ‘age of maturity’, typically 25 years old. Child term riders almost never require any underwriting of the child.

Child term riders usually cover all dependent children whether biological, stepchildren, or adopted children. Some of these riders allow for conversion to a small permanent policy for the child as well.

The small coverage amount is typically there to help cover funeral costs.

8) Term Conversion Rider

Term conversion riders allow you to convert your term policy into a permanent policy without going through underwriting. These can be of instrumental value and are generally very inexpensive.

• Most people buy term insurance when young and healthy due to the low costs
• As you get older, your coverage needs change or you start estate planning, and you often look to buy permanent coverage
• However, health tends to decline with age and being in a less healthy rating class significantly increases your premiums on a permanent policy
• Therefore, locking in a healthy rating class on a term policy while young and having the option to convert to a permanent policy and retain that healthy rating can save you a lot of money

When you convert, you get a permanent policy from the insurance company at current prices for your age and previous underwriting class. In the instance where you think your health has improved, you can often request to be re-underwritten.

Additionally, most conversion riders allow for you to decrease your coverage amount if you want. Some insureds will convert a term policy into a low face amount final expense permanent product.

9) Disability Income Rider

Disability income riders are similar to accelerated death benefit and critical illness riders. If you become disabled, this rider will pay a specified payment to you, usually 1% of your face amount a month.

However, unlike accelerated death benefit riders, disability income riders generally:

• Don’t reduce your death benefit
• Total payments are not capped and you receive them till you die or recover

There is also a version of disability income rider called a ‘supplemental disability income rider’. This version pays a reduced benefit based on any government-funded disability you are receiving. For example if you are eligible for $2,500 with the rider, but Social Security is paying $1,500 monthly disability, the rider would pay an additional $1,000 a month. The supplemental version of the rider should be slightly less expensive.

10) Cost-of-Living Adjustment (COLA) Rider

Cost-of-living riders will increase the coverage amount based on the rate of inflation. These riders will typically use a published number like the consumer price index (CPI) to make the adjustment.

Generally, the premiums you pay will also increase slightly, though typically not in proportion to the increase in coverage you receive.

11) Critical or Chronic Illness Rider

Critical or chronic illness riders are another form of living benefit rider like accelerated death benefit riders. A critical or chronic illness rider allows you to access your death benefit if you get diagnosed with one of the qualifying illnesses.

The qualifying conditions of a critical or chronic illness rider can differ from accelerated death benefit riders and LTC riders. For example, a temporary disability may qualify you for benefits under an accelerated death benefit rider, but not under a chronic illness rider. Additionally, you can have a qualifying chronic illness that doesn’t necessarily qualify for disability. Otherwise, they are very similar in practice. Check your rider documents to see what conditions qualify.

12) Family Income Benefit Rider

A family income benefit rider pays a steady income to your surviving beneficiaries. Life insurance benefits are typically paid out as a lump sum benefit upon death. If you handle all the finances and/or the sole breadwinner of the family, you may want to provide a stream of payments.

Most family income benefit riders will pay a lump sum at death and then the additional income stream for a specified period of time. The length of time the rider pays out can be customizable or specified by the insurance company.

Miscellaneous Riders

Some other, less popular riders include:

• Spousal insurance rider – a rider that pays a set amount if the policyholder’s spouse were to die. These riders aren’t as robust as a stand alone policy for your spouse and are often negated in case of divorce.
• Term insurance rider – additional coverage added to a permanent insurance policy for a fixed period of time.
• Return-of-premium (ROP) rider – Return-of-premium riders are typically only available on term policies and return some or all of your premium if you outlive the policy. However, ROP riders tend to be very expensive, sometimes more than tripling the cost of the policy. Additionally, they typically don’t return all the money you paid due to excluding for some policy fees or rider fees.

There are also riders that make up core components of a product and are not severable. For example, a no-lapse guarantee rider on a universal life (UL) policy. These are filed as riders and their official name includes rider, but they are a core component of the UL policy. When you buy a protection UL product with a no-lapse guarantee, you get a secondary account with different guaranteed charges. If either your main account or your secondary ‘shadow’ account is positive your coverage won’t lapse. This rider almost always comes standard on the product and is core to the value proposition. Therefore, despite being ‘riders’ they are left off the list as they act like part of the base policy.

However, there are many more potential riders out there for a plethora of different needs and coverages.

Reasons To Not Get A Life Insurance Rider

Despite all the benefits and ability to personalize your life insurance product with riders, there are reasons to not get a rider. The main reason being the additional costs that often comes with riders. If you don’t think you will use a rider or already have adequate coverage through other policies, you likely don’t need the rider.

For example, if you have a generous stand alone long-term care policy, you may not need the additional LTC rider and opt out of paying for it.

Especially for permanent insurance that has a cash account, any additional fees from a rider will be a drag on your account performance. This not only can hinder your cash value growth, but may result in you paying more premiums than planned on a universal life policy.

Lastly, some riders are more strict with qualifying conditions. If you think the rider has too narrow of a scope to qualify for, you may choose to get that additional coverage in a separate policy.

The Final Word

Life insurance riders can be immensely valuable in customizing your coverage for you. From protecting you if you get sick or disabled, to additional features and benefits, riders can help you get the coverage you need. Some riders come standard on a base policy with no explicit additional charge, while other riders require paying a fee.

There are near limitless amount of riders available and they vary from product to product and insurer to insurer. If you want to purchase a rider, make sure you read the plan documents to ensure the coverage and exclusions align with your needs.

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