What You Should Know Before Purchasing Life Insurance Riders

In this article...
  • Life insurance riders can be an effective tool for customizing a standard policy. Learn what types of riders are available and whether they're worth the cost.

Although life insurance offers financial protection for your dependents if you die, a basic policy may not suit your family’s unique needs. Life insurance riders can help you customize your plan, providing additional coverage for situations that aren’t accounted for in your policy’s terms. In this article, you’ll learn what life insurance riders are, what types of riders you can purchase and whether they’re worth the cost.

What Is a Life Insurance Rider?

A rider is a provision that’s added on to a standard life insurance policy to customize your coverage. Life insurance riders often provide additional protection, such as higher death benefits, early payouts or a waiver of premiums, when certain conditions are met. 

Common Types of Life Insurance Riders

The selection of riders you'll have to choose from depends on your insurance company. However, most carriers offer the most common riders, including accelerated death benefits, long-term care riders and family insurance add-ons.

Accelerated Death Benefit Riders

Accelerated death benefit riders, which are sometimes called living benefits, grant you early access to some or all of your death benefits when certain contractual conditions are met. Beneficiaries receive the remaining death benefit after you die.

The most common types of accelerated death benefit riders are:

  • Terminal illness riders. If you’re diagnosed with a terminal illness, which is often defined as having a life expectancy of 12 to 24 months, this rider lets you access your death benefit tax-free. Most insurers don't place limitations on how the money may be used. However, for the funds to be released, you'll typically need a doctor’s certification stating that you're terminally ill.
  • Critical illness riders. A critical illness rider pays out when you’ve been diagnosed with a serious but survivable illness that may leave you with substantial medical bills and, potentially, a shortened life expectancy. Qualifying conditions may include cancer, ALS, kidney failure and heart attacks.
  • Chronic illness riders: Chronic illness riders provide early access to your death benefit if you have a condition that prevents you from performing at least two of the activities of daily living, which include eating, bathing, toileting and dressing.

Some carriers include terminal illness clauses or other accelerated death benefit riders at no extra cost.

Long-Term Care Riders

Sometimes categorized as an accelerated death benefit, long-term care riders let you use some or all of your death benefit toward residential or in-home long-term care services if you can no longer live independently. Although an LTC rider may cost up to several hundred dollars a month, it's often a less expensive alternative to purchasing standalone LTC insurance.

Family Insurance Riders

You may be able to purchase a modest amount of coverage for your dependents through family insurance riders. These riders, which are available for spouses and children under the age of 18, provide less coverage than standalone policies, but they can help cover burial costs or expenses related to the loss of a non-breadwinning spouse, such as childcare. 

Accidental Death and Dismemberment Riders

AD&D riders pay out if you die as a result of an accident but also offer a benefit if you lose a limb or digit. They can provide an extra layer of security for individuals employed in high-risk jobs or those who engage in extreme hobbies, but they can be costly, and the benefit is typically paid out under strict guidelines.

Waiver-of-Premium Riders

If you become permanently disabled, as defined in the terms of the rider, a waiver-of-premium rider eliminates your life insurance payments while keeping your coverage intact. Most insurers require an individual to be permanently disabled for this benefit to take effect.

Guaranteed Insurability Riders

Guaranteed insurability riders offer you the option to increase your coverage at specific times, as defined in your policy terms. This may include milestones such as marriage, the birth of a child or major birthdays. These riders are often added on to starter policies purchased for children so the policy can grow with their needs.

Family Income Benefit Riders

Under this rider, your designated beneficiary will receive an amount equal to your standard monthly income if you die. These funds, which are paid out in addition to the policy’s death benefit, are disbursed in installments for a predefined period of time.

Return-of-Premium Riders

If you outlive your policy’s term, a return of premium rider guarantees a refund of premium payments, minus any administrative fees. This type of rider is often prohibitively expensive.

Term Conversion Riders

Through a term conversion rider, you may convert term life insurance into a permanent policy. This type of rider varies considerably among carriers, with some companies placing limitations on the percentage of your plan that can be converted.

What Is a 20-Year Renewable Term Rider?

Renewable term riders provide additional coverage by adding a layer of term insurance, which is renewable annually, to the base life insurance policy. This extra coverage ceases after the 20-year term is up, but some riders may offer policyholders the option of converting this added term insurance into permanent coverage. Depending on your carrier, other term durations may be available, typically in 5-year increments.

Are There Riders on Term Life Insurance?

Many riders can be applied to term life insurance policies. In fact, riders such as term conversion and return-of-premium riders are designed specifically to work with term life policies. However, each insurer may have different rules governing what riders may be purchased with different types of policies, so check with your insurance agent or a company representative for policy specifics.  

When Should You Purchase a Rider?

Most insurance companies require riders to be purchased at the same time as the base policy. However, if you’ve already purchased a life insurance policy and want to customize it further, some companies may permit riders to be added on later.

When adding a rider to a preexisting policy, some insurers require additional underwriting steps, often including another medical exam. If you're determined to be at a higher risk, you may be assessed increased premiums.

Can You Remove a Rider From Your Policy?

Depending on the terms of your contract, you may be able to remove an unwanted rider from your policy. Removal may have conditions and typically requires a policyholder’s written authorization.

Are Life Insurance Riders Worth the Cost?

Life insurance riders can help you customize a basic life insurance policy and may provide additional protection, but they often come with a high price tag. Whether the benefits are worth the cost ultimately depends on the individual rider and your specific financial needs.

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