Most consumers are aware that Term Insurance is the most affordable life insurance available, but few are aware of all the riders available that help you customize your term life insurance policy to offer a better solution to meet your needs and budget.
An internet search will provide as many term insurance advocates as naysayers, but rarely do you find legitimate information about the many riders that are available from the carriers.
There are many term insurance riders to consider before making a purchase, so you will end up with broader coverage at an affordable price.
Types of Life Insurance Riders Available
Accelerated Death Benefit (ADB)
The ADB, although considered a rider, is now part of the core coverage with most insurance carriers and requires no additional premium.
ADB provides for the insurer to pay a portion of the death benefit to an insured that has been diagnosed with a terminal illness that is likely to result in the death of the insured within 12 months.
This advance of the death benefit allows the insured to help pay for end-of-life medical expenses and other final expenses that the insured decides to take care of.
The remaining death benefit will then be paid out to the beneficiary upon the death of the insured.
Waiver of Premium Rider
The waiver of premium rider keeps the insurance policy in force by waiving the periodic premiums if the insured becomes disabled and is unable to pay the premium.
The terms of the rider are spelled out in the policy and typically contain a waiting period, a minimum period of coverage before the rider is activated, and the company’s definition of disability.
Most insurers will automatically remove the rider when the insured reaches age 60.
Accidental Death Benefit
Sometimes referred to as “double indemnity,” the accidental death benefit rider provides for the insurer to pay a multiple of the face amount (usually double) if the death of the insured is the result of an accident.
Typically, the insurance contract will define what an accident is and the maximum amount of time that can elapse between the accident and the insured’s death.
Guaranteed Insurability Rider
The guaranteed insurability rider can be particularly important for young adults because it provides for an insured to be able to purchase additional insurance without having to prove insurability.
The rider provides an effective way for the insured to increase the death benefit when life changes such as marriage, childbirth, and homeownership, require additional coverage to make certain surviving loved ones are financially protected.
Long-Term Care Rider
Purchasing a traditional long term care insurance policy is challenging because of the cost and the underwriting requirement.
However, getting coverage through an insurance rider can add this critical coverage for a very modest price.
Similar to the Accelerated Death Benefit, the long-term care rider provides for the insurer to pay a large portion of the death benefit if the insured is diagnosed with a health condition that requires them to live the balance of their lives in a nursing facility.
The terms and conditions of the rider may vary by company, so it’s critical for the applicant to make certain they understand the rider’s conditions prior to selecting it.
The term conversion privilege may be the most important option when purchasing term life insurance.
When the conversion takes place, only the age of the insured is taken into consideration during the underwriting process.
Health questions or medical exams are not required, so the insured is guaranteed approval for the permanent insurance that is available from their insurer.
Fred had purchased a 30-year term insurance policy to cover all his outstanding debt when he was 35 years old. Over time, Fred has substantially paid down the mortgage and reduced all other debt to a negligible amount, and decides to convert his term policy to a Universal Life policy at a much lower death benefit. Like many American workers, Fred has put his job ahead of his health and has developed high blood pressure along with high cholesterol and put on a lot of weight.
Since Fred is converting his term insurance to permanent insurance, his new policy is very affordable because Fred has reduced the death benefit and his new health conditions have no effect on the premium.
Return of Premium Rider
The return of premium rider provides for the insurer to return all premiums paid to the insurer if the policyholder survives the term of the policy.
This money is paid in a lump-sum and is a tax-free payment since the money is a return of premiums paid with after-tax dollars.
Although there is an additional cost of 20 to 50% for the rider depending on the age of the applicant, this option makes good financial sense for young adults when the cost of the rider is minimal.
The return of premium rider can be a fantastic living benefit for an insured who outlives their policy and then receives a substantial refund of the premiums that can be used for any reason such as investing it in their retirement plan, paying off a mortgage, or buying additional insurance.
Additional Insured and Child Term Riders
These two important riders make it possible for an applicant to add their spouse and children to their term insurance thus creating a family life insurance plan at a lower cost than separate policies.
The additional insured rider will allow the applicant to insure their spouse for an amount up to the face amount of the insured and cover all children in the household for an amount up to the limits allowed by the insurer.
An additional benefit of the Child Term Rider is that all children plus any future children born or adopted are insured under the death benefit selected by the applicant.
By taking advantage of riders offered by the insurer, policyholders can broaden the coverage of a simple term insurance policy and elect several living benefits to the policy.
Although term insurance does not build cash value and provides temporary coverage, the policyholder can receive a cash refund using the return of premium rider or convert the policy to permanent insurance using the conversion privilege.
With these important riders now available, term insurance can be more than a death benefit.