If a basic life insurance policy doesn’t provide the coverage you need, you may be considering one or more life insurance riders. These add-ons can bring flexibility to your plan, accommodating unexpected events that aren't covered by the standard terms and conditions of your policy. In this article, you’ll learn the basics of life insurance riders, including common options available today and whether adding one to your policy is worth it.
What Is a Rider on Life Insurance?
A life insurance rider is a provision that’s added to your policy to customize it. Riders provide supplemental benefits, such as extra coverage that's paid out in certain circumstances, or the waiver of premiums if specified criteria are met. Although some riders may be provided at no cost when you purchase your policy, most come with an additional premium.
Can You Add a Rider To an Existing Policy?
Riders should generally be added at the time the base policy is purchased. Although it’s sometimes possible to add them to an existing policy, you may be required to complete the underwriting process again, which can include another medical exam. Plus, because the insurance company is essentially reassessing your risk profile, you may end up with an increase in your premium.
Can You Remove a Rider From an Existing Policy?
Although the answer ultimately depends on the individual insurance carrier, most companies will let you remove an unwanted rider from your policy. Dropping a rider usually requires authorization from the policyholder. You may need to fill out a form or submit the request in writing.
What Common Life Insurance Riders Are Available?
The types of life insurance riders available to you can vary depending on the company that provides your policy. The following riders are commonly offered by insurance carriers:
Accidental Death and Dismemberment Rider
If you have a dangerous job or participate in high-risk hobbies, you may want to consider an accidental death and dismemberment rider, which pays out if you die, or lose a limb or digit, in an accident. Although these add-ons can be costly and typically have strict guidelines governing payouts, they can provide peace of mind for individuals who engage in extreme activities.
Guaranteed Insurability Rider
Through a guaranteed insurability rider, you can increase your life insurance coverage to predetermined amounts at times specified in the terms of the policy. Benefit increases may be available at major milestones, such as marriages and births, when you reach a particular age or when the policy has been active for a certain number of years.
If you take on more coverage through a guaranteed insurability rider, you'll have to pay a higher premium. However, you won’t be required to undergo a new medical exam, and you won’t risk a denial due to declining health.
This rider may be useful for policyholders who anticipate an increase in coverage needs as they age and take on financial obligations, such as a mortgage or kids' college tuition. It’s typically used in conjunction with permanent policies such as whole and universal life insurance.
Family Income Benefit Rider
If you’re the sole breadwinner in your family, the family income benefit rider can add crucial coverage to your life insurance coverage. This policy add-on pays your designated beneficiary an amount that's equal to your monthly income if you die. The benefit is paid out in installments rather than as a lump sum, and it doesn't include the base policy’s death benefit, which pays out once the rider payout is complete.
Family Insurance Riders
These policy add-ons offer coverage for dependents and shouldn’t be confused with the family income benefit rider. Family insurance riders typically take on two forms:
- Spousal insurance riders: Although spousal insurance riders provide less coverage than a standalone policy for your spouse, they can deliver a small payout to cover expenses such as childcare if your spouse passes away.
- Child insurance riders: Although most children don’t need life insurance coverage, a child insurance rider can provide for expenses such as a funeral if your child dies. These riders are typically inexpensive and can cover children between the ages of two weeks and 18 years.
Waiver of Premium Rider
A waiver of premium rider eliminates your premium payments if you become permanently disabled. Although each company has its own definition of disabled, most only waive premiums in cases of total, permanent disability.
Long-Term Care Rider
An LTC rider lets you use some or all of your death benefit payout if you require long-term care either at home or in a residential setting. Although this rider can cost as much as several hundred dollars each month, it’s still generally less expensive than purchasing a standalone LTC policy.
Accelerated Death Benefit Rider
Sometimes referred to as a living benefit rider, this policy add-on lets you receive some or all of your death benefit payout if you’re diagnosed with a terminal illness. Although the definition may vary by insurer, an illness is typically considered terminal if it carries a life expectancy of fewer than 12 months. The payout for this benefit is usually tax-free, and most insurance companies do not place limitations on how you use the money. Your beneficiaries receive whatever value is left in the policy at the time of your death.
There are several variations of the accelerated death benefit rider:
- A critical illness rider, which typically pays out if the insured is diagnosed with an illness which, if untreated, could cause death within six months
- A chronic illness rider, which covers conditions that prevent the insured from completing activities of daily living, such as bathing, eating or dressing.
Many insurance companies include an accelerated death benefit rider at no extra cost.
Return of Premium Rider
A return of premium rider refunds your premiums if you outlive your policy’s term, but it can be prohibitively expensive and doesn’t typically cover the many administrative fees associated with life insurance.
Term Conversion Rider
A term conversion rider lets you convert a term life insurance policy to a permanent life insurance policy. This rider can be useful if your health declines, letting you obtain the security of a permanent policy without the higher premiums that might come with a new plan. Terms may differ by carrier, and some insurance companies may only let you convert a portion of your coverage.
Are Life Insurance Riders Worth It?
Life insurance riders can provide extra financial protection for you and your family, but this supplemental coverage often comes at a cost. Whether life insurance riders are worth the expense ultimately depends on the individual rider and its relevancy to your situation. By partnering with a reliable insurance agent or financial advisor, you can accurately assess your financial situation and choose the riders that are right for you.