The Policy Purchase Rider is a benefit which guarantees the right to purchase another policy with a face value of up to $100,000 on a periodic basis, without having to provide additional medical exams or proof of insurability.
This feature can be exercised on specific option dates until the age of 45 on average, but this age limit depends on the company.
You as the policyholder can exercise this option on the scheduled option dates regardless of your occupation or your health.
How Does The Policy Purchase Rider Work?
The Policy Purchase Rider can be added to permanent life insurance policies and certain term policies depending on the company. When you purchase a new policy you can exercise this feature and it guarantees you the right to purchase additional coverage without ever having to provide any physical exam.
It gives you the flexibility to regularly determine how much protection you need from your life insurance policy as your circumstances change, and then add coverage based on those changing needs. In some circumstances, it provides you with automatic additional term protection at no additional cost.
You also have the option of adding other benefits to your new policy if they were part of your original policy, such as an accidental death benefit or a disability waiver of premium benefit. This type of feature allows parents and grandparents to purchase coverage for any new children or grandchildren as part of the existing policy they have.
The Policy Purchase Rider also gives you the opportunity to access an underwriting Savings Credit which reduces the premiums you pay for the first year of your new policy if you take out a new policy on your option date.
Who Is Eligible For It?
The Policy Purchase Rider is available for anyone taking out a new policy. Different companies offer different riders or restrictions for term versus permanent policies. Once you take out a policy that has this benefit you have to look at the schedule. Option dates. Companies will provide you with a list of scheduled ages at which point you are allowed to purchase additional coverage.
Typically, these are ages like 22, 25, 28, 32, 35, 37, 40, and 45.
Your application for a new policy has to be submitted most of the time within 60 days before the option date and no more than 30 days after the auction date. The new policy will take effect as soon as you exercise this feature. The option amount will determine the maximum face value you can choose for your new policy.
Most of the time these new policies must have at least $10,000 but cannot exceed $100,000.
Who Is It Best For?
The Policy Purchase Rider is best suited for individuals who plan on regularly evaluating their financial situation and changing coverage as a result. A policyholder who recently got married might want to include this benefit so that they can add additional protection for each child they have in the future.
Someone who already has children might want to use this option so that they can add coverage for their older children, their younger children, and the grandchildren that they might have in the future. It is also best for someone who knows that certain financial burdens will shift before the cutoff date.
If you have a mortgage for example, and you know that it will be paid off before the age of 40, you might want to exercise this benefit. If you got married young and you already have a family and you know that those children will probably need coverage or have grandchildren very early, before that cut off date of 45, this policy benefit might be best for you.
Pros and Cons
1. Flexible and Affordable Additional Coverage for a Large Portion of Your Life
By design, this rider is meant to allow you the option of adding coverage at important times in your life such as when you get married or when you have children. Some companies actually provide you automatic temporary term coverage for a selected special date.
You can choose to use this benefit for your wedding day, the date of a legal adoption, and the day you have a new child born in the family. If you exercise this automatic temporary term coverage feature as part of the Policy Purchase Rider, the company will provide you with term coverage within 90 days of the event in question.
2. No New Health Risk Classification
With the new policies that you purchase with this Policy Purchase Rider, you will remain in the same risk classification as your base policy which means the premiums won’t go up because of changes in your health or your age.
You also can choose other riders to accompany the new policies you take out.
1. Age Limit
The biggest drawback to such a feature is that every company has an age limit at which point that option expires. Again, the average is 45 years which means once you turn 46 you no longer have the option of adding any additional coverage.
The idea is that at this point in time most of your financial obligations are starting to decrease so you won’t need to add more coverage, if anything you’ll want to reduce your coverage.
How Much Additional Coverage Can I Get With the Policy Purchase Rider?
The following chart shows how the Option Amount is calculated for an example company:
|Age When Policy is Issued||# Options||Option Available at These Ages:||Maximum Option Amount* at Each Option Date is Lesser of:|
|28-30||6||31-34-37-40-43-46||$100,000 or 2x face amount|
|31-33||5||34-37-40-43-46||$100,000 or 2x face amount|
|34-36||4||37-40-43-46||$100,000 or 2x face amount|
|37||3||40-43-46||$100,000 or 2x face amount|
|38-39||3||40-43-46||$100,000 or 1x face amount|
|40-42||2||43-46||$100,000 or 1x face amount|
|43||1||46||$100,000 or 1x face amount|
How Much Does It Cost?
This varies very widely between life insurance companies. Most companies allow you to automatically take out additional term life insurance coverage on all permanent life insurance policies free of charge.
Some life insurance companies do not offer this at all, depending on the policy type and also depending on the company itself. Others allow Policy Purchase Riders but charge a cost for it. Speaking with a professional can help you find coverage with this type of policy rider easily.
Best Life Insurance Companies
|Company||A.M. Best Rating|
|Ameritas (FLX Living Benefits Products)||A+|