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Every person has unique needs to consider when it comes to purchasing a life insurance policy. While a basic, or standard, life insurance policy may be enough for some policyholders, it may not provide the right coverage for you and your family. Because of these nuances, life insurance companies often offer life insurance riders, or endorsements, which act as add-ons and make your policy more unique to your specific requirements. Riders may be related to the people on your policy, the status of your policy, or even be related to specifics of your health. This Bankrate overview will help you understand the different types of life insurance riders that may be available to you, and how tailoring your life insurance policy to your specific needs may give you much-needed peace of mind.
- A life insurance rider is a policy endorsement or add-on that exists to help individuals tailor their life insurance policy to their unique needs.
- Policyholders are able to add as many life insurance riders as they need to their policy as long as they are willing to pay the associated premiums.
- Common life insurance riders include waiving your premium in the event of a serious illness or injury, adding covering for an underage child and the ability to access your death benefit if you are diagnosed with a terminal illness.
What is an insurance rider?
An insurance rider, also known as an endorsement, is a policy add-on that provides additional coverage and extends the terms and conditions of your policy. For instance, many life insurance riders allow you to use the money from your policy before you die. Life insurance companies sell a variety of riders which you can use to personalize your coverage based on your needs.
As a policyholder, you can purchase as many riders as your life insurance provider sells. That
means you have full control over how much coverage you have. However, each rider you add could cause your premium to increase. Some riders might be worth the money, while others may not add significant benefit.
Common types of life insurance riders
Insurance riders are meant to personalize your coverage if basic life insurance doesn’t quite meet all your needs. There are several options for life insurance riders and these will vary among life insurance providers, so you’ll likely want to do your research to find out which type might be best for you and your beneficiaries. Although there are numerous types of riders available, below are some of the most common life insurance riders:
Accelerated death benefit rider
An accelerated death benefit rider is one of the most popular life insurance riders. It allows the policyholder to use their death benefits if they get diagnosed with a terminal illness that could cause an early death. Having access to your death benefit in this situation can help cover medical bills or help you better navigate this unforeseen situation in terms of financial planning for your estate. Every insurance company has their own list of covered terminal illnesses, so you may want to see what’s covered before adding this particular rider. Another perk of the accelerated death benefit rider is that many insurance providers offer it at no additional cost.
Long-term care rider
If you need to stay at an assisted living facility or receive home care as you get older, a long-term care rider could help you cover the monthly payments. Some examples of qualifying long-term centers are nursing homes, adult day care, hospice and memory care facilities. Some insurance companies allow the long-term care rider to be used for family members of the policyholder. There are two types of long-term care riders: reimbursement riders and indemnity riders. A reimbursement rider can help pay the cost of your long-term care expenses every month — up to the policy’s limit — whereas an indemnity rider is a predetermined amount of money that is paid out monthly, regardless of the total cost of your long-term care. Policyholders may find this rider beneficial so that they are not tapping into their savings or depleting estate assets just to fund the long-term care.
Accidental death rider
After you pass away, your beneficiaries receive compensation from your policy’s death benefit. However, if your death is due to accidental bodily injury, an accidental death rider may allow your beneficiaries to receive double the amount of money in the policy. Keep in mind that not all accidents are covered. Risky activities, like skydiving, are not covered. However, if you work in a factory and are fatally injured by equipment or machinery, your beneficiaries would likely receive a death benefit. This rider may also be called “accidental death and dismemberment” or “double indemnity” by insurance companies and agents. This rider is worth considering to alleviate some financial burdens that may result in the event of an early death, especially if you are still providing an income that benefits your family.
Waiver of premium rider
If you become disabled, or lose your income due to injury or illness, the waiver of premium rider typically allows you to stop paying your monthly premium. When you’re able to go back to work, you’ll be required to start making the payments again. The only contingency to the waiver of premium rider is that you’re only covered up to a certain age — typically until the age of retirement.
Guaranteed insurability rider
In order to get approved for a life insurance policy, you often need to complete and pass a medical exam. With a guaranteed insurability rider, you can typically adjust your coverage throughout your lifetime without needing to take another medical exam. This rider is especially valuable because it allows you to apply for additional coverage if your health declines without a reevaluation.
Return of premium rider
With a return of premium rider, you pay a small monthly premium and when your policy’s term ends you recoup the money paid. If you pass away before the term is up, your beneficiaries should receive the money. This is typically one of the most expensive riders you can purchase since the insurance company is reimbursing part of that premium paid.
Family income benefit rider
If you are the only person in your family that has an income, consider purchasing a family income benefit rider. This add-on policy can help provide a consistent income to your family after you pass away, in addition to the lump-sum they’ll receive from the death benefit.
Child term rider
A child term rider will pay out a death benefit in the event that a child passes away before a certain age. This type of rider is only available for term life insurance policies. Although it can be difficult to consider the costs associated with burying a child, it is even harder to deal with those expenses while grieving. Once the child becomes an adult, the term policy can be converted into a permanent life insurance policy with up to five times the amount of original coverage without them needing a health exam. Plus, your children may attempt to purchase a life insurance policy when they are older and have families of their own, which means they are being rated at a higher age. This rider gives the benefit of locking in insurance rates at age 18 when they are healthy and premiums are low.
Additional life insurance riders
Life insurance riders help build out your standard coverage. While the riders listed below may not be the most common, they could be useful for people in specific circumstances. These riders include:
- Chronic illness rider: If a policyholder is diagnosed with a chronic or terminal illness, they could receive a payout.
- Spousal rider: This rider provides a payout if the policyholder’s spouse dies. However, this may not be the most secure option. If the policyholder dies before their spouse, the spouse will not receive a payout and may fare better with their own policy.
- Disability rider: A disability rider could pay out a monthly income if the policyholder becomes disabled.
Are insurance riders worth it?
Life insurance riders will often increase your premium, so you might be wondering if it’s worth the added cost. Ultimately, it depends on your personal needs and your financial situation because life insurance is a very personal choice. When purchasing life insurance, it is important to consider future estate planning and weigh your family’s or beneficiaries’ needs against the added cost of a policy premium Planning for your death can be a difficult conversation, not just because of the emotional aspect, but because it is hard to know what will happen in the future on an economic level. Sometimes, speaking to a licensed life insurance agent or a certified financial planner can help you make sure you are accomplishing all of your intended goals with the life insurance policy you purchase.
You will not need every rider on your policy that your insurance company offers but that does not mean you should not review your options. It is important to understand riders that could be applicable to your individual situation and consider whether the rider adds enough value to justify the added premium. For instance, if you have a child who suffers from a serious illness, you might consider purchasing a child term rider. If you don’t have children and don’t plan on having them in the future, you may find another rider most beneficial to your circumstance.
Additionally, consider that every rider may increase your premium by a different amount. A return of premium rider, for example, is one of the most expensive riders you can buy. Many customers find that this rider offers minimal value, unless their insurance provider offers an accelerated death benefit rider as well.
Frequently asked questions
Life insurance riders allow you to personalize your insurance coverage, so the best life insurance rider is the one that best covers your specific needs. When you are shopping for coverage, check which rider options are available at different life insurance companies to make sure your specific situation can be covered. If you are not sure what type of rider you need, explain your life insurance goals to a licensed agent or certified financial planner so that they may help you understand where your standard policy falls short on coverage.
Yes, certain riders are designed to cover family members and beneficiaries, rather than the policyholder. Every insurance company has different terms and conditions for the riders they sell, so make sure you understand what is covered and who is covered before purchasing a rider.
You can purchase as many life insurance riders as you want, although you probably won’t need to buy every rider available. Most riders will add cost to your overall premium. The more riders you have, the more coverage you have, but you may pay a significant amount for that added protection.
Joint life insurance policies are designed to cover a couple instead of an individual. There are two types of joint life insurance–a “first-to-die” policy and a “second-to-die” policy. A “first-to-die” policy pays the death benefit out to the surviving spouse after one passes away, which could help your spouse survive financially without a second income. A “second-to-die” policy only pays the death benefit out once both insureds have died, which might be an attractive option for couples seeking to only pay one premium.