The Complete Life Insurance Riders Guide

Have you ever heard of the term life insurance riders but aren’t quite sure what a rider is?

The term life insurance riders simply refers to extra items you can attach to a basic life insurance policy for a certain cost. Each rider is unique because it performs a very specific task.

Think of life insurance riders like options on a car. You can buy a basic model car, or you can “upgrade” your car by adding options.

Life insurance is no different, except these options have been coined riders instead.

The Complete Life Insurance Riders Guide

A basic life insurance policy is the exchange of your premium dollars for a specified death benefit amount. This death benefit is guaranteed and for a specific time period. That’s life insurance 101. There’s not much else to life insurance, right?

Well, sorta.

There are those things called riders, which change the dynamics of how a life insurance policy acts in different circumstances. We’ve compiled this guide for you so you can take a look at the different types of life insurance riders, and what they accomplish. Simply click an item and it will take you to the correct location on the page.

Life Insurance Riders List

  1. Accelerated Death Benefit
  2. Accidental Death and Dismemberment
  3. Child Protection
  4. Critical Illness
  5. Disability Income
  6. Guaranteed Insurability
  7. Long Term Care
  8. Other Insured
  9. Paid-Up Additions
  10. Return of Premium
  11. Spousal Rider
  12. Term Conversion
  13. Term Insurance
  14. Waiver of Premium

Accelerated Death Benefit Rider

The accelerated death benefit rider has become much more commonplace over the last few years. It literally advances a portion of the death benefit to you while you’re still alive. This disbursement is for those who are declared terminally ill by a medical professional with 12 months or less to live. ┬áMost companies do have limits to the amount you can take, but many don’t have limitations to how the funds are used. Monetary limits are primarily $25,000-250,000, no more than half of the full death benefit amount. The amount disbursed while living is removed from the death benefit proceeds after passing.

Accidental Death and Dismemberment Rider

The accidental death and dismemberment rider is very similar to what you may know as an accidental death life insurance policy. It provides an extra benefit, usually at a drastically cheaper cost per thousand than traditional life insurance, which pays out in the event you pass in an accident. This rider does NOT pay in the event of a health related death, and the claim must be made usually within a given time frame of the accident to verify the cause of death.

Child Protection Rider

The name says it all for the child protection rider. These life insurance riders have many variations in title, but all provide a small death benefit for the children of the insured. Some companies even allow this on grandchildren, but it’s much less common. The rider tends to be purchased in units, where each unit is $1,000 in coverage for the child. Units can be purchased from 10-25 in quantity, and these riders cover all children in the household under one rider.

Another unique thing to note about this kind of life insurance rider is the auto-inclusion aspect. Once the rider is in force, as new children are born, they can be added simply by making the insurance carrier aware and supplying the child’s social security number.

Critical Illness Rider

These life insurance riders are some of the newer on the market, and not available with all carriers. A critical illness rider is one which aids the insured in accelerating benefits due to heart conditions like heart attacks, cancer, a stroke or similar life threatening matters. This is similar to the long standing accelerated death benefit rider, but has more specific limitations to the disease as opposed to the time frame. It also pays a portion of the death benefit ahead of time and subtracts it from the total remaining to be paid at death.

Disability Income Rider

This is one of the life insurance riders where the name tells you what you need to know. In the event of disability, this rider provides an income stream to your and your family in order to continue basic bills. A disability income rider replaces a portion of your income, up to a certain amount or maximum benefit. The pay period can be short term or long term, depending on the company and policy type.

Guaranteed Insurability Rider

The guaranteed insurability rider is a life insurance rider which has many different names depending on the company offering it. What the rider does is fairly simple though; it offers you the chance to continue life insurance coverage without having to prove you are insurable to the carrier again. For instance, you would not be required to complete a medical or provide doctor’s statements of change in health, whether or not it occurred.

Long Term Care Rider

Once again, one of the life insurance riders where the name speaks its operation. Long term care riders are ones which literally pay a predetermined amount of benefit (either daily or monthly) to support the insured with payments towards long term care. While each rider from each company has limitations, most long term care riders are somewhat flexible to pay for home care benefits, assisted living benefits, or full needs. Daily and monthly maximums range, and can even be a portion or percentage of the death benefit, depending on the structure of the issuing company.

Other Insured Rider

The other insured rider refers to having the capability to have a term coverage amount on someone who is not the primary insured. It could be a spouse, but it could be someone other than the spouse as well. Limitations usually are limited to family, friends, or business partners as long as there is a defined insurable interest and reason to combine insurance. The other insured rider stands to offer yearly renewable term, or even long duration term. Limits are usually a stated maximum death benefit, or a percentage of the primary insured’s amount, whichever is lesser.

Paid-Up Additions Rider

The paid-up additions rider is one of the more exclusive riders, as it’s limited to life insurance contracts which hold cash value, more specifically whole life insurance. The paid-up additions rider is one where a portion of the premiums paid go towards slowly increasing the death benefit over time. I’ve heard of this concept being described as “buying tiny life insurance policies” over and over again. As time passes, the total death benefit increases along with the cash value.

In instances where the insured is looking to maximize cash values within a life insurance policy without creating a Modified Endowment Contract (MEC), this is a critical rider to increase the corridor of non-taxable cash. As the paid-up additions create higher face amounts which no longer require premiums, it allots more room to add cash value while keeping its tax-free status.

Return of Premium Rider

If you are one of the few looking to maximize every dollar you spend, this might be one of the life insurance riders you’ll want to take into consideration. The return of premium rider is one where you can literally get your paid premiums back after the duration of the term life insurance policy has elapsed.

For example, if you pay $1,000 per year into a policy and are still living after 20 years has passed, the company will return to you the $20,000 you spent, plus a stated amount of interest. While it seems like it would be a no brainer to get this type of rider, they can be costly. You also have to complete the entire policy or you lose your premiums. If you pay into a 20 year policy 19 years then stop, you still won’t be eligible for any return, and you lose premiums plus the extra fee for the rider.

Spousal Rider

A spousal rider is one of the most common life insurance riders. A spousal rider is a great way to insure the spouse of the primary insured with term life insurance at an affordable rate. Sometimes, a spousal rider works almost the exact same as having two policies, and just paying one bill. There are some limitations on spousal riders, though, like higher face amounts or long duration term policies. Another thing you might need to consider is the loss of insurance on the spouse if the primary insured loses or drops coverage.

Term Conversion Rider

One of the life insurance riders we see on most term life insurance policies by major companies are term conversion riders. This allows the insured to convert some or all of the original term policy into a different product. Conversions can be turned into universal, variable universal, and whole life insurance products.

There are two things you need to understand about the conversion rider. The first is the time frame. While you may not need to prove your insurability, you will be required to convert in a certain time frame, such as 10 years into the insurance product. The second is conversion age. You can convert at attained age (AATC) or original age (OATC), but not by every company. Should you choose to use your original age, you will likely need to pay back premiums to take advantage of the younger age.

Term Insurance Rider

A term insurance rider is also one of the most commonly utilized life insurance riders, but it’s not the same as child or spousal riders. This rider is to add additional term coverage on the primary insured’s policy. It can be used in two ways.

  • Additional term on top of a term policy: Let’s say a person wants a long duration term for $100,000, but they need extra coverage for the next five years. Rather than purchasing a separate policy, the insured could simply add the term insurance rider for the extra amount until the five years has passed.
  • Additional term insurance on a whole life: Much like the above example, the insured could add extra coverage on top of their permanent product to have extra coverage up front, and long standing coverage thereafter.

Waiver of Premium Rider

Most life insurance carriers offer the waiver of premium rider for their policies. The purpose of this rider is to relieve the primary insured of paying premiums should a disability occur. If a person is declared disabled, usually 6 months or longer, the disability waiver of premium rider will pay their policy for them until they are no longer disabled or die, whichever comes first.

This rider can be pricey, especially as a person ages, and the rider almost always expires at age 65.

Not all riders listed are available for all companies, and each life insurance carrier may have a different set of rules or guidelines in qualification and effecting these riders. Most require extra premium, although certain riders, such as the living benefits rider, can be made available free of charge.

If you have any questions about these life insurance riders in particular, or you have additional life insurance riders you’d like mentioned, please do not hesitate to contact us for more information or company specific guidelines and premiums.

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