When getting life insurance, it is important to find out everything about the policy you will be purchasing. There are many things in a life insurance policy that are often written in fine print but are essential when purchasing coverage. One of these things are riders.
What is a rider on a Life Insurance policy?
Life insurance riders are additional terms and conditions that go into force when your policy goes into force. However, these additional terms and conditions often come with an extra cost. Adding a rider may increase your premium. However, people prefer adding riders as they include benefits when getting a normal life insurance coverage. These benefits include being able to convert a term life insurance policy into a whole life insurance policy. If you become disabled, you can temporarily waive your premiums. With a rider, you even get the benefit of receiving part of the death benefit early.
A rider is also often referred to as an insurance endorsement. It can be added to life insurance policies, homeowners insurance policies, renters insurance policies, auto insurance policies and more.
Riders are essentially for policyholders that have specific needs and need their policy amended to meet those needs. Riders will help create an insurance policy that suits their needs and provide them with the benefits they need. This will cost the policyholder a bit more than it would for a normal insurance plan without a rider. But the policyholder will be getting a customised plan with various types of additional coverage so paying a few extra bucks will not go to waste.
The rider benefits in life insurance include the increased savings from not buying a separate policy and having coverage options for a later date.
For example, a person with a terminal illness wants to add an accelerated death benefit clause on their insurance policy will be able to do so with a rider. It will provide the individual with a cash benefit while they are still living. The insured can then use these funds for whatever they wish. They can travel before they die, improve the quality of life or pay for their medical or even final expenses.
There are a few common types of riders that are often used.
Types of Riders in Insurance:
- Guaranteed Insurability Rider.
This rider prevents you from further medical examination in case you need to purchase additional coverage. A guaranteed insurability rider is mostly used when there has been a significant change in the insured’s life such as the birth of a child or marriage. Moreover, if your health declines, you will be able to add more coverage without giving proof of your insurability. This rider will also allow you to renew your base policy without any medical checkups.
- Accidental Death Rider.
This type of rider will pay out an additional death benefit if the insured passes away from an accident. Usually, the additional death benefit paid out is the same amount as the face value of the original policy leading to double the death benefit. In case of death due to accidental bodily injury, the deceased’s family will get twice the amount of the policy. That is why this rider is also called a double indemnity rider. This type of rider is good for individuals who are the sole earner in their family as the double death benefit can take good care of your family and help them in the expenses after your death.
Under this rider, the policyholder can waive off the premiums if they end up becoming disabled or lose their income due to an injury or disease prior to a specified age. This only applies to working people and not on individuals who have reached retirement age and want to waive off their premiums.
In these circumstances, the rider helps the insured stay on their feet by replacing their income until they can work again. This can be valuable especially if the premiums are high. However, what some insurance companies may call disabled, others may not which is why it is important to check the terms and conditions of your policy when you purchase it to avoid any discrepancies later.
In case the policyholder dies and has a family that depends on their income, the family income benefit rider will help provide a steady income to the policyholder’s family. When you purchase this rider, it is essential to note the number of years your family is going to receive this benefit. The benefit of this rider is obvious, in case of your death, your family will not have to face as many difficulties as they will have a stable income from the rider.
In case you are diagnosed with an illness that will shorten your lifespan, this rider will help you with an advance of a percentage of the death benefit of the base policy. Insurance companies will then subtract the amount you have received from the total benefit and give the remaining amount to your beneficiaries on your death. In some cases, no premium is charged for this. However, some insurance companies may end up charging a small premium. Again, insurance companies may have different ideas on what counts as a terminal illness so it would be wise to check this before purchasing the policy, or before purchasing the rider at least.
- Child Term Rider.
This rider will provide a death benefit if a child dies before a certain age. Once the child is of legal age, the term plan can be converted into permanent life insurance. The benefit this will provide instead of buying a separate policy is that you will get five times more coverage without the need for a medical checkup.
If the policyholder is living in a nursing home or receiving home care, they will get monthly payments from this rider. Although, long term insurance can be bought separately, most companies offer riders that will take care of any long term demands without the hassle of buying a separate policy.
This rider will pay you marginal premiums which will be returned to you in full by the end of the term. In case of a death, this rider will pay your beneficiaries the total amount you have paid in premiums. However, there are many interpretations of this rider and every insurance company has a different policy so make sure you read the fine print and understand what kind of the return of premium rider is being offered to you.
Now that we have life insurance riders explained, the bottom line is, most insurance companies will not pay much heed to your terms when offering insurance coverage. However, with riders you can customize your coverage plan according to your needs. What a rider is on a life insurance policy is basically a way to customize your coverage plan without the hassle of purchasing a separate policy or having to undergo medical exams every time you want another coverage option. Although it may cost you more, it is simply worth it as it saves you time and effort.