What Is A Life Insurance Rider

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    What Is A Life Insurance Rider? Cost-Effective And Customizable Options

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    Life insurance plans can be costly, especially if you want all of the bells and whistles. To save money, many policyholders opt for a lower-cost option: purchasing a rider on top of their insurance.

    But, what are life insurance riders, exactly? And are they a good fit for you?

    In this article, we’ll discuss all of the basic information and fundamentals of riders, including its definition, how it works, its advantages and disadvantages, and the most common kinds of policy riders.

    Life Insurance Riders Explained

    A policy rider is a life insurance policy provision that allows you to add benefits or amend specific terms in an existing life insurance contract. Insurance companies offer riders for both term life insurance and whole life insurance, ensuring that every insurance policy can be tailor-fit to your needs.

    These amendments to your base policy do not require additional underwriting and therefore have minimal impact on your premium payments. This makes them an attractive alternative to purchasing additional insurance policies, which can get expensive. However, your options for riders may vary depending on your existing life insurance coverage.

    Advantages & Disadvantages Of Having Riders On An Insurance Policy

    Riders can be beneficial to any policy. That’s because each rider offers additional coverage that would have been more expensive if purchased as a standalone policy. On top of this, individual policy riders mean that your chosen benefits do not come as part of a bundle, which means that you’re only paying for the amendments you want. This helps cut down on plan-related costs. 

    Having policy riders on your life plan won’t impact any tax benefits you already receive with your basic plan. The sole disadvantage is policy riders (e.g. disability riders) may be exclusive to specific types of insurance. Some riders are only available for term insurance while others can only be added on to a whole life insurance policy. We recommend contacting a financial professional to get up-to-date information about your specific policy.

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    Common Life Insurance Riders

    Different kinds of insurance life policy riders come with various features and terms of use. But, no matter your lifestyle, health status, or financial situation, there’s likely a rider that caters to you. In this section, we discuss the most commonly purchased insurance riders.

    Waiver Of Premium Rider

    A waiver of premium rider gives the policyholder the option to stop paying their premiums if they become disabled while their life insurance coverage is active. A waiver of premium rider is intended to ease the financial burden of an insured person losing their stream of income due to a serious injury.

    This waiver applies to term life insurance policies, whole life insurance policies, and any additional coverage that you may have purchased. However, the validity of this clause may vary based on your life insurance company’s definition of “disabled”. For example, a life insurance company may require that the insured person be “totally disabled” due to physical injury or terminal illness.

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    Accelerated Death Benefit Rider

    An accelerated death benefit rider allows the insured person to collect their death benefit while they’re still alive. This can be an excellent choice for policyholders who may need funds for their medical bills and end-of-life expenses. 

    A typical insurance company would require that the insured person be diagnosed with a terminal or serious illness before they can use this rider. If the policyholder’s condition fits the definition provided by the insurance company, they may be able to take 80-100% of their total death benefit. On top of this, policyholders aren’t required to report their expenditures, so the funds can be used any way they need to.

    The only significant trade-off is that the cash value withdrawn from your death benefit will not be returned to your account. Therefore, your living beneficiaries won’t receive any money if you pass away. Before purchasing this policy rider, you may want to consider how it impacts your policy’s cash value and death benefits.

    Long-Term Care Insurance Rider

    A long-term care rider is a life insurance policy clause that provides support if the insured person can no longer perform two or more of the six ADLs or activities of daily living:

    • Transferring/ambulating
    • Feeding
    • Dressing
    • Personal hygiene
    • Continence
    • Toileting

    If you fulfill the criteria, this life insurance rider may pay for your long-term care needs and other similar medical costs without the hassle of applying for disability insurance.

    It’s important to note that an insurance provision like a long-term care rider can be expensive. However, the benefits sometimes outweigh the financial costs. For example, even if policyholders find that their long-term care expenses are worth significantly more than their life insurance policy’s face value, this rider will continue to cover costs until the policyholder passes away. 

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    Accidental Death Benefit Rider

    An accidental death rider allows the policyholder’s beneficiaries to receive more than the face amount of the policy. However, a certain requirement must be met – the policyholder must have passed away due to an accident. Life insurance companies may often have varying definitions of “accident”, so make sure to check with your provider.

    Accidental death riders pay out 2x the life insurance death benefit. Because of this, individuals whose jobs may put them under considerable risk may want to consider this type of rider.

    Family Income Benefit Rider

    This rider is unique because it replaces a loved one’s income stream after they pass away. Instead of a traditional lump-sum payment, the death benefit is paid out in predetermined monthly sums. If you purchase this amendment, you have to decide how long you want your family to receive payments.

    Sole breadwinners may find these riders to be particularly beneficial for their families. They don’t have to worry about budgeting a larger sum, and because it eases the burden of budgeting a larger sum.

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    Term Conversion Rider

    Insurance term life provides coverage for a limited period between 10 to 30 years. Once the coverage period expires, the policyholders’ beneficiaries are no longer entitled to a death benefit. If a policyholder still wants the security of life insurance after their coverage ends, they have to get reassessed for insurability, which may result in inflated premiums. 

    Some companies may offer a term conversion provision rider that allows individuals to convert their existing term insurance to whole life insurance. This conversion can be useful for young families who want to save on long-term costs. This term rider may also open up the possibility of applying for riders not available on a term life insurance policy. 

    Guaranteed Insurability Riders

    A guaranteed insurability rider is exclusive to whole life insurance policyholders. This rider helps most policyholders purchase additional life insurance coverage without going through the rigors of another application process.

    Having a guaranteed insurability rider can be very helpful for people who expect greater financial responsibility in the future. It also provides an easy workaround for people who may not want to take a life insurance medical exam. Keep in mind that your coverage and life insurance policy rate is still determined by your age at the time of application. 

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    Conclusion

    Life insurance policy riders are an excellent way to customize your coverage while still keeping costs relatively low. However, it can be difficult to navigate all of the different kinds of riders available on your own.

    Connecting with a financial professional lets you negotiate the best life insurance plans for your family. Contact us at Wesley LLC so we can help find the perfect insurance policy for you! 

    Written By Cameron McDowell
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