What Are Life Insurance Riders And Do I Need Them?

Written by Jeff Root

You mean there are options?

If you’ve done any research on life insurance, you’ve noticed there are options. Not just between companies, but each and every company has their own unique “riders”.

What Is A Life Insurance Rider?

A rider is a policy “add-on”, or a mini-contract tacked onto the policy. If you’ve bought home and auto insurance, they call it an endorsement. It’s a change to policy, usually adding features and new coverages.

Over time many insurance companies have turned popular riders into features of the policy. These features are built-in. You don’t have to select them and they don’t cost extra to get them.

Most true riders will add a small increase to the premiums for your policy.

There are a host of riders available per company. Let’s run through the list of the most common riders you will encounter as you research what life insurance company to choose. For each rider, we will give a brief description, who should consider, and how much it will cost per policy.

Let’s go.

Waiver of Premium Rider

What happens if you become disabled during the life of your insurance policy?

You become disabled to the point, you are unable to pay the premiums, but you desperately need life insurance. You wouldn’t be alone. 1 out of 5 American experience permanent or temporary disability.

The Waiver of Premium rider allows you to stop paying your premium during the period of your disability.

Most policies require you to be disabled for 6 months before the benefit begins. Each insurance company has a different max period of disability. It will usually expire at age 60 or 65. Make sure you understand the insurance company’s definition of disability.

Cost:

  • 5-10% of the total premium

Disability Income Rider

Here is another disability option for life insurance. If you become disabled, you may need to supplement your income lost due to the disability. If you don’t have the option of disability insurance with your current employer, you should consider this rider.

The Disability Income Rider comes with short-term and long-term options. Short term is a 7-day payout. Long-term will vary based on the insurance company. Time frames are usually 2 years, 10 years, or up to age 65.

Cost:

  • $100-$200 / month

Accelerated Death Benefit (ADB) Rider

If you contract a terminal illness, the Accidental Death Benefit rider will give you a portion of your death benefit while you are still living. It will only apply when you are given 12-24 month life expectancy. Sometimes the ADB rider is referred to as a “living benefit” rider.

Many policies add this as a feature to the policy.

Cost:

  • Usually free

Policy Purchase Rider

The Policy Purchase Rider lets you buy additional coverage in the future regardless of health. The benefit here is that you can raise the amount of insurance over time without submitting to another medical questionnaire and exam. You have already qualified for the policy, so you will qualify for the increased coverage.

Many companies will include this as a feature, but there are often time limits as to when you can add the coverage. If you buy life insurance, but not enough, due to budget concerns, this feature is for you. As your income changes, you can increase coverage.

Permanent policies have similar options. Permanent policies generally refer to this as a Guaranteed Insurability rider.

Cost:

  • Free, except for the increased premium due to more coverage.

Term Conversion Rider

Often called a convertibility rider. Many companies add this to their policies as a feature. Term conversion allows you to convert a term policy to a permanent policy as it nears the term expiration.

Because you qualified for the term policy, you do not have to submit to the medical exam again to determine acceptability.

Cost:

  • Free. The only premium change will be the increase due to a permanent policy vs. a term policy.

Return of Premium (ROP) Rider

The return of premium rider is for term policies only. When your policy expires at the end of the term, the company will return all the premium you paid over the life of the policy.

For example, you purchased a 30 year $500,000 term policy when you were 25. It cost you $40/month. Now you are 55 and the policy term is finished. Over those 30 years, you paid $14,400. If you don’t convert it to a permanent policy, that premium will be returned to you.

For most companies, this is not a rider, but a separate policy. Companies that sell return of premium policies will do so as a variation to their slate of term products. There will be a traditional term policy and a separate ROP term version.

 

Cost:

  • Usually 50-150% of the term premium. If a traditional term is $20 / month, expect the ROP to cost $30-50/month.

Level Premium Rider

The level premium rider has become a standard feature for most term policies. Level Premium means if you purchased a 30 year term policy for $25/month. You will continue to pay $25 / month for the life of the policy.

Even though most insurance companies include this rider as a feature, don’t assume it. Make sure to ask the question. It’s not uncommon more small coverage permanent life marketed to seniors to be an increasing premium product. You don’t want to be surprised in year 2 or 5 or 10 with a dramatic increase in monthly premium.

Cost:

  • Free

Guaranteed Renewability Rider

With the Guaranteed Renewability Rider, you can renew the policy without the need for a new medical exam. You will be accepted to extend the policy with no new underwriting.

This is usually a feature of most term policies.

Cost:

  • Free. But there may be an increase in premium if the original policy has expired.

Accidental Death Rider

Accidental Death or the Double Indemnity Rider will pay beyond the normal life insurance benefit if death is accidental in nature rather than through disease or natural causes.

In most cases, it doubles the benefit. If you have a $100,000 policy with this rider, your family will receive $200,000 is there is an accidental death.

Cost:

  • $10-$15 per month per every $100,000 in coverage.

Child Term Rider

The Child Term Rider provides a death benefit for your children. If a child dies before a specific age there will be a death benefit for the family. This is normally purchased in units of $1,000 in coverage per child.

With this rider, the child’s term portion can be converted into a permanent policy with coverage up to 5x the original amount without the need for a medical exam.

Cost:

  • $.50 / $1000 in coverage. The pricing drops as the face value increases.

Long-Term Care Rider

If an insured has to be admitted to a nursing home, assisted living, or have in-home care, long-term care will offer money to pay for the care.

Even though necessary, a Long Term Care plan can be expensive as a separate policy. When added to a life policy, there are usually time periods chosen such as 2-6 years or through the end of life.

Cost:

  • This varies by carriers. Some carriers are better suited for senior products.

Critical Illness Rider

This rider is similar to the Accelerated Death Benefit rider. A lump sum benefit is given if the insured is diagnosed with a critical illness specified in the policy.

Common illnesses are cancer, heart attack, stroke, kidney failure. The payment is not a reimbursement for medical services but may be used for any reason.

Cost:

  • Varies by carrier

Term Insurance Rider

The Term Insurance Rider is specifically designed for permanent policies such as whole life or universal life.

Here’s an example of how this may work. Let’s assume you own a $100,000 universal life policy. Because it is a permanent policy, it will not expire, and continue throughout your life.

Maybe you need more insurance than the $100,000 would provide, but can’t afford the increase to the permanent policy. The need for more insurance is only temporary while you have dependents at home.

With this rider, you can add a term rider which is an affordable way to increase coverage.

Cost:

  • Free. The increase will only be the extra coverage you purchase.

Spouse Insurance Rider

The spouse insurance rider allows you to add coverage for your spouse on your policy.

Cost:

  • Cheaper than two separate policies

Paid Up Additions Rider

This is a unique rider available for permanent policies only. Permanent policies have a life insurance portion but also have a cash value component that accrues value over time.

The Paid Up Addition rider is used for a very specific investment strategy. It allows you to increase the cash value portion of the policy beyond what normal monthly premiums contribute.

Cost:

  • The increase you determine for the cash value.

Cost of Living Rider

Inflation makes everything go up in cost. The $500,000 30 year policy you bought 20 years ago is worth a lot less today. The Cost of Living rider increases the coverage over time based on the inflation factors in the Consumer Price Index.

Cost:

  • Free, but the increased cost of coverage will impact your monthly premium.

Charitable Giving Rider

Would you want a portion of your death benefit going to a charity you support? Do you have an organization that has impacted your life, and you’d like to leave a legacy to them?

The Charitable Giving Rider does this for you. Name a charity in your policy and they will receive a small % of the death benefit.

This is rarely a rider with most companies. It is usually built-in as a feature and comes with no extra cost to you.

Cost:

  • Free

Best Life Insurance Policy Riders – Wrapping it Up 

Are you exhausted from looking at all the life insurance policy and rider options? Do you feel like you’ve just been giving a 10-page menu at a restaurant? Where do you even begin?

Find a handful of riders that apply to you, and begin asking questions of an agent once you narrow down life companies. Agents will know which riders various companies provide. They can also tell you which ones build them in as features versus having them as riders.

Many of these riders are incredibly beneficial and give you options over time. They let you expand your policy beyond the normal death benefit included with life insurance.

Use our quick quote feature to begin, then talk with our agents about the options each company has available to you.

Compare the Best Life Insurance Riders

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About Best Life Insurance Companies

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