There are many reasons to invest in a life insurance policy, but the most important one is protecting your family after you're gone. By purchasing a life insurance policy with a sufficient death benefit, you can rest assured your dependants will have cash to cover living expenses, any debts you owe, and even your final expenses if you happen to pass away before your time.
Still, life insurance products can actually be rather complicated, and there are numerous ways you can customize a policy to your needs.
One way to do exactly that is through the use of life insurance riders. While a life insurance rider can vary in terms of scope and coverage, this term is used to describe additional benefits added to an insurance policy that require additional payment.
- A life insurance "rider" is an add-on or upgrade you add to your life insurance policy.
- Life insurance riders can be used to customize your life insurance coverage, and to provide additional benefits you need or want.
- Life insurance riders can give you additional peace of mind, but they can make your life insurance premiums more expensive as well.
- Make sure to compare different types of life insurance, as well as available riders, before you decide on the best coverage for your family.
10 Common Life Insurance Riders
Think of life insurance riders as "upgrades" or add-ons to your policy that provide additional coverage and peace of mind in exchange for higher premiums. The following riders are some of the most common within the life insurance industry:
Return of Premium Rider
A return of premium rider allows life insurance customers to get their premiums paid back when their policy expires. For example, someone with a 30-year term life insurance policy can pay their premiums for the entire timeline, then get every cent returned to them once 30 years are up and their policy term is over.
While return of premium sounds like a good deal, keep in mind that having this rider on your life insurance policy means you'll pay more over the long run. In many cases, buying a term life insurance policy for a lower cost and investing the difference makes more financial sense than adding a return of premium rider.
Accelerated Death Benefit Rider
An accelerated death benefit rider gives the insured the option to accept a financial settlement that is less than the death benefit of their policy if they are diagnosed with a terminal illness. If you find you have terminal cancer at the age of 40 and your term life insurance policy won't expire until you're 60, for example, this rider could help you access cash when you need it most.
As Nationwide Insurance puts it, "that money can be used to pay for treatments and make your final days as comfortable as possible. Your beneficiaries will get any money that’s left over."
Critical Illness Rider
You can also purchase a critical illness rider that works similarly to an accelerated death benefit rider. With this rider, the insurer will give you an agreed upon sum of cash if you're diagnosed with a critical illness such as cancer or multiple sclerosis, or if you have a heart attack or stroke.
Having this rider on your policy means that, if you use it, your beneficiaries will receive a smaller death benefit than they would have otherwise. With that being said, you will have the benefit of being able to access money for medical bills, living expenses and more while you try to recover.
Waiver of Premium for Disability
A waiver of premium for disability ensures you can maintain your life insurance coverage without having to pay premiums if you become disabled or critically ill and you're unable to work as a result.
Waiver of premium for disability terms and conditions can vary depending on your life insurance provider and the coverage you select. In some cases, you may even get some of your premiums refunded to you as part of this benefit.
Accidental Death Benefit
An accidental death benefit rider expands the amount of coverage you have if you die in an eligible accident. While covered accidents can vary from company to company, this type of rider can lead to a higher death benefit if you die in an auto accident, a plane crash or another incident that could not be predicted ahead of time.
The amount of the accidental death benefit you can add to your policy varies depending on the life insurance provider, so make sure to shop around and compare coverage if you believe you could benefit.
Spousal Rider Death Benefit
A spousal rider death benefit typically provides level term insurance for the insured's spouse, although the scope and the amount of the coverage can vary.
Generally speaking, a spousal rider death benefit can help a couple get covered under the same life insurance policy without having to buy separate coverage. Spousal riders also tend to be less expensive than buying a separate life insurance policy for a spouse.
Child Protection Rider
A child protection rider extends an additional death benefit for the child (or children) of the insured. This additional coverage can kick in to pay for medical expenses and final expenses if a child passes away. However, funds can also be used to cover additional expenses related to a child's untimely death, such as time off work for the parents and other family members.
Long-Term Care Rider
A long-term care rider added to a life insurance policy can help protect the insured against costly long-term care expenses. Similar to an accelerated death benefit rider, this insurance rider can help you access a lump sum of cash that can be used to cover long-term care premiums as well as related expenses.
Considering 7 out of 10 people will require long-term care in their lifetime, and that median costs for long-term nursing home care in a semi-private room worked out to $7,756 per month in 2020 according to Genworth, it's easy to see where this rider could come in handy — or even save your finances.
Yearly Renewable Term Rider
A yearly renewable term rider allows you to renew your term life insurance coverage without a medical exam. While your ability to renew your coverage is guaranteed thanks to this rider, it's important to keep in mind that premiums can and will go up based on your age.
According to Fidelity, renewable term riders are popular among young people who want short-term coverage and affordable premiums. With this rider in place, they can lock in coverage while they're young and healthy with the guarantee they won't be turned down to renew their policy if their health deteriorates later on.
Family Income Benefit Rider
While most life insurance policies pay out a lump sum death benefit when you pass away, you may decide you want your family to have monthly income coming in instead. With a family income benefit rider, you can ensure your life insurance benefits are paid out in monthly installment, and in a way that mimics your income when you were alive.
This rider is frequently purchased by individuals who are the main earners in their household, as well as those who are worried how their dependents might handle a lump sum of money. While a family income benefit rider may add additional cost to your life insurance premiums, some insurance companies offer this option without any charge.
The Bottom Line
Life insurance riders can help you tailor your life insurance coverage to your unique needs. Also remember that different types of life insurance exist, and that you should compare term life insurance coverage with other types like whole life and universal life before you invest in a plan.
While you may be able to decide on a life insurance policy on your own, don't be afraid to sit down with a life insurance agent who can advise you on your life insurance options and their respective benefits as well as cost. At the end of the day, the best life insurance policy is one that has the right amount of coverage for your needs for a price you can afford.