Your life insurance policy should work for you. Most articles and online resources will tell you that there are a few basic forms of life insurance policies: term life insurance, whole (or permanent) life insurance, guaranteed life insurance, final expense life insurance, group life insurance, variable life insurance, and no-exam (or simplified issue) life insurance.
You may be thinking: How can seven policy types cover everyone’s unique circumstances?
Life Insurance Riders
The answer is simple: life insurance riders. Life insurance riders are amended or additional benefits added to your life insurance policy. Riders allow you to customize your life insurance policy, insulating it with extra protection in the areas you may need it the most.
In this article, we’ll get into the most common types of riders and what each rider will cover. It is important to note that riders aren’t “free extras,” rather, these riders will mean paying a bit more in premiums. Generally, any additional premium cost due to the addition of riders will be low, because very little underwriting is required.
Let’s take a look at some of the riders available, and what these riders cover:
Accidental Death Rider
An accidental death rider is exactly what it sounds like: an additional death benefit that is paid out should the insurer die due to an accident. In most policies, this death benefit equals the amount of the original policy, effectively doubling the death benefit. This rider is sometimes referred to as a “double indemnity rider.” This type of rider is good for anyone looking for extra coverage but is particularly helpful if you, the insured, are the sole breadwinner for your family.
Long Term Care Rider (LTC)
A lot can happen in a person’s life, and there are riders built for almost every situation. What would happen to your finances if you were diagnosed with a chronic, but not life-threatening, illness or disability? Enter: long-term care riders, which are designed to protect you in the event you can no longer care for yourself or perform daily activities (such as taking medications, feeding yourself, or dressing yourself), by paying for a portion of the expenses incurred in scenarios like this. Illnesses/diseases such as stroke, certain accidents, and injuries, and Alzheimer’s, are all covered under this rider, which also covers nursing homes or live-in care. As with other riders, this will cost more in premiums; however, if the benefits from LTC riders are not needed, the full value of the rider will be given to your beneficiaries.
Long-term care riders might be a good idea for additional coverage, particularly as you age. Your age is a common factor in increasing your risk for developing arthritis, stroke, dementia, and Alzheimer’s. If severe, these conditions may leave you unable to care for yourself.
Before considering this rider, you should sit down with your agent and your partner/close family, and thoroughly assess your financial situation, mainly: Are you prepared to pay for extended care and what are you currently willing to pay for this coverage?
The death benefit on LTC riders is relatively low, compared to the benefit on term or whole life insurance plans, and may not be enough on its own to provide your beneficiaries with adequate financial protection. Additionally, the cost for this rider is fairly high and, in some instances, you may be paying up to 20% more for your policy!
A few other things to consider before choosing this type of rider:
- Your medical history, and your family’s medical history. A family history of stroke or Alzheimer’s increases your likelihood of developing these diseases/conditions.
- Your current health. Are you a smoker? Do you suffer from high blood pressure? Are you packing a few extra pounds? All of these factors are considered risks and increase your likelihood of developing diseases that need long-term future care.
- Your aversion to risk. You already know that life insurance companies assess your risk when deciding to insure you, but do you know your own risk tolerance? Good health is not a guarantee, and diseases or accidents can happen to anyone. If you have a good financial plan in place and are prepared for any future expenses, your risk tolerance will be higher than if you do not have funds stashed away for emergencies. Talk to your life insurance agent to see how we can help you assess your risk.
Guaranteed Insurability Rider
This rider is a little bit tricky. Basically, a guaranteed insurability rider allows you to buy extra coverage, within a stated period of time, without a medical exam. This rider is particularly beneficial if there have been any significant changes in your life, and if your health declines you can apply for extra coverage without providing evidence that you’re insurable. Occasionally, these riders will end after a certain period of time, or they may come with a renewal of your main policy at the end of its term – no medical exam is necessary.
Chronic Illness Rider
If you suffer a serious illness or disability, chronic illness riders are an alternative to long-term care riders. This rider can be used for cancer, cognitive impairment, strokes, accidents, or injuries. If it sounds similar to LTC riders, it’s because they are relatively similar, with one key differentiator: the conditions for chronic illness riders must be permanent in order to qualify for coverage. This means chronic illness riders may be unsuitable for those who have had a stroke or an accident from which they are expected to fully recover.
Family Income Benefit Rider
This type of rider will provide a steady monthly income stream in the event the insured dies, alleviating a lot of financial difficulties from the loss of the insured’s income. This rider comes with a bit of work; you will need to determine the number of years your family is going to need the benefit, and how much they will need. If this seems like a daunting task, give us a call! We can help you determine your needs to see if this is the right rider for your family.
Accelerated Death Benefit Rider
With an accelerated death benefit rider, the insured can use the death benefit should he/she be diagnosed with a terminal illness that is expected to shorten their lifespan. Under this rider, the insurance company will front a percentage of the base policy’s death benefit to the policyholder. Sometimes no premiums are charged for this rider, but it is more common for insurance companies to charge a small premium. The amount you receive from the accelerated death benefit rider will often accrue interest and will be deducted from your overall benefit. The caveat: different insurers have differing definitions for “terminal illness.” It is important to verify what the rider covers before you consider adding this to your life insurance policy.
Child Term Rider
The Child Term Rider will pay out a death benefit if an insured child dies before a certain age. This plan can be converted into a whole/permanent life insurance plan once the insured child ages out of the rider, without a medical exam.
Waiver of Premium Rider
This rider allows future premiums to be waived if the insured loses their income, or becomes permanently disabled, due to an injury or illness. A waiver of premium rider is usually only in effect up to a certain age, typically 65 or 70.
Ultimately, the rider you choose can help tailor your policy more effectively to your unique financial needs. If you’re confused as to what rider may be best for your situation, or how these riders will fit into your budget with your current premiums, reach out today!