Customizing a life insurance policy to make it more valuable for you and your family is easy with the wide range of riders available
A rider is an optional add-on to a life insurance policy that can provide added benefits or flexibility for a policyholder. Some riders are included in policies at no charge, while others can be added for an additional fee. Riders can also be referred to as endorsements.
If you are wondering if you should consider adding a rider to your life insurance policy, the answer depends on your needs and the types of riders you are considering. It is important to note that not every life insurance company offers the same riders. Evaluating your rider needs before purchasing life insurance is important to get the best plan and coverage for yourself.
Life insurance policy riders cover life events that standard life insurance products do not. That may include instances where a policyholder develops a critical or terminal illness, wants coverage for their children, additional coverage for an accidental death and many other scenarios. Riders offer consumers a high degree of customization to policies to better prepare for unexpected events that may occur, sometimes many years after a policy is issued.
Common Types of Life Insurance Riders
Life insurance policy riders vary by insurer, but many are considered standard offerings among most companies. When shopping for a policy, one of the questions you may want to ask is which policies carry various riders and provide extra coverage and extra benefits, and then use this information to design a policy that best suits your unique circumstances.
Common types of life insurance riders include:
This rider is also called an Accelerated Death Benefit rider (ADB) and is often included at no charge with many life insurance policies. This rider allows those diagnosed with a terminal illness to collect a portion of the death benefit while they are still alive. Specifics vary by company, but often a terminal illness is one in which the policyholder has less than 12 months to live and allows them to access up to 50% of the benefit.
This rider is similar to a terminal illness rider, except the policyholder does not need to be diagnosed as terminal to collect a portion of their death benefit. A living benefit rider may include chronic illnesses and diseases such as cancers, severe diabetes or debilitating diseases as diagnosed by a qualified medical professional. You can use this to pay for nursing home expenses or create added disability income.
Beneficiaries can be awarded an additional policy death benefit if the policyholder dies due to an accident, such as a car crash. Terms vary for an accidental death benefit but may include an additional 25% payout in many cases. Some riders also provide an additional benefit coverage amount for dismemberment, such as the loss of a limb, with a specified cash benefit paid depending on the nature of the injury.
A policyholder can convert a term life insurance policy to a whole life policy without undergoing a medical exam during a specified period. That adds flexibility by letting you choose permanent coverage later on without having to get an exam, which can be a valuable benefit if your health takes a turn for the worse. Conversion riders may be included in the monthly premium, allowing policyholders to convert for as much as 30 years or more into the future.
If a policyholder becomes disabled and can’t work, this rider pays premiums so that a policy can remain in force. Be sure to ask about waiting periods and how long the waiver remains in effect when shopping for a policy.
This rider allows you to add coverage for all children, generally in small amounts, for an additional premium cost. Term coverage is often convertible to a permanent life insurance policy when the child reaches a certain age.
Most term life insurance coverage will guarantee that you can renew a policy on a year-to-year basis after your term expires. The catch is that you’ll pay much higher premiums. Usually, it is cheaper to buy a new policy when a term policy expires, but this rider makes sense for people diagnosed with a serious or terminal disease near the end of their term and have no other coverage options.
This is a less common rider, but some providers will add an extra 1% to your standard death benefit (up to a maximum designated maximum) to be paid to the charity of your choice, over and above the amount paid to your designated beneficiaries, for no additional cost.
You may need added coverage at specific times, such as when your children are young or you have a large mortgage. People sometimes use a renewable term rider to buy shorter-term coverage to guard against these added layers of need.
This can help increase the accumulation of tax-deferred cash values and death benefits by purchasing paid-up additional insurance to supplement non-guaranteed cash value and death benefits.
Advantages of Using Life Insurance Riders
Riders are designed for maximum protection based on individual policyholders’ unique life challenges or concerns, perhaps decades in the future. There are several advantages to consider with riders.
Does it Cost to Add a Rider to a Life Insurance Policy?
Some riders are automatically added to policies at no cost for enhanced coverage. Others may be added for a small additional premium payment, while others may cost more but provide the exact type of coverage a policyholder wants.
It’s important to discuss rider options with an insurer or an independent broker or agent when you shop for a policy. Be sure you fully understand the costs, limitations and exclusions so there are no surprises later if you need to use the added coverage.
You can purchase as many riders as you want. Consulting with an industry professional will help guide you to find the best affordable life insurance coverage based on what you need.
Cost of Life Insurance Riders
Although exact costs will vary by insurer, the type of riders you want and your unique risk profile, here are some examples of what you might expect for some types:
- Child Protection. Adding a $10,000 death benefit for the death of a child will likely cost around $5 per month per child.
- Accidental Death and Dismemberment. A benefit that pays up to $50,000 may also cost around $5 a month. However, this may be adjusted upwards if you engage in a risky lifestyle or you have a dangerous job, such as a firefighter or police officer.
- Return of Premium. This rider is only added to term life insurance policies, but it can be very expensive, possibly adding as much as 30% to your base premium cost.
- Waiver of Premium. It can cost as little as $5 to $10 a month if you add this rider to a $100,000 whole life policy.
- Critical Illness. This rider is usually very affordable. It is often added without any extra cost with the best whole life insurance policies.
Do I Need Life Insurance Riders?
It depends on your circumstances and what you can afford. Some riders may be added to your policy at no additional cost, but you will have to discuss your needs versus costs with your loved ones and get input from an insurer or an agent as well.
Consider these factors as a starting point:
- Do you need additional coverage for your other family members? Children riders can be added to parents life insurance policies
- Do you work in a dangerous industry or have a knack for dangerous hobbies? Accidental death and dismemberment riders are perfect because they can help cover you in tricky spots.
- Do you want the opportunity to convert your term policy to whole? Term conversion riders allow you to do so!
The Bottom Line
Riders are an important part of the life insurance policy process. Your needs may be simple or you may be approaching an important part of your life when your family needs your income the most to protect against losing a home or paying college expenses or other major financial impacts.
The types of riders that work best for you may come at an added cost, but if you can afford them, most present an excellent added-value opportunity. When you’re getting life insurance quotes, consider what riders are available as well. You can work with a financial professional to help determine which ones would work best for you.
Frequently Asked Questions About Life Insurance Riders
In some cases you can add riders at a later date. You’ll need to discuss that with your existing policy issuer or ask that question upfront when shopping for a policy.
There is no single right answer for all cases. It depends on which rider best covers your specific needs.
Yes. Some riders cover family members and beneficiaries instead of the policyholder. The child protection rider and the two-person policy rider are notable examples of this.
Riders often do not cover suicide, self-inflicted injury and death or disability induced by dangerous hobbies and sports. They also don’t generally cover drug or alcohol abuse leading to death. Read the fine print when you buy a policy rider so you fully understand your coverage and, just as important, what’s not covered.
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