What Are Life Insurance Riders and When Do They Make Sense?

Whether you have a life insurance policy through your employer or choose to take one out on your own, it’s part of your family’s overall financial contingency plan, which lets you sleep easier knowing they’ll be financially taken care of even if you’re no longer around to provide for them. But sometimes, people need a little more flexibility or coverage than what the typical life insurance policy provides. That’s when a life insurance rider might make sense.

What Is a Life Insurance Rider?

When you buy a new automobile, the dealer typically lets you customize your new vehicle by paying extra for options you want to add to the standard model. A life insurance rider is a similar concept. It tacks another option—in this case, some form of extra coverage—onto your base life insurance policy for an additional premium amount.

Types of Life Insurance Riders

There are a variety of life insurance riders that cover a range of situations. Here’s what some of the most common ones provide:

• Accelerated Death Benefit (ADB) Rider: If you’re diagnosed with a terminal illness as defined by the insurance company, you can claim some percentage of your death benefit while you’re alive, and your beneficiaries will receive the remainder when you pass away. Many life insurance policies include an ADB rider as a standard feature.
• Accidental Death and Dismemberment (AD&D) Rider: It pays an additional benefit on top of your base life insurance policy if you die or lose a limb or certain body functions as a result of an accident. It can make sense if you have a particularly risky job or engage in dangerous hobbies. But before you purchase one, make sure you understand the types of accidents and dismemberments that qualify for the benefit because the parameters are typically limited.
• Child Term Rider: Also called a Child Protection rider, it pays a death benefit if a child dies before reaching a certain age. It provides two big benefits:
  • It helps cover the child’s funeral expenses.
  • When the child reaches maturity, it can be converted into an adult life insurance policy without having to take a medical exam, which can be advantageous for children with medical conditions that might make it hard for them to get a policy otherwise.
• Chronic or Critical Illness Riders: These are specific types of ADB riders that pay the advance death benefit if you’re diagnosed with a chronic or critical illness as defined by the insurance company.
• Disability Income Rider: If you become disabled as defined by the rider, you receive a monthly benefit, typically 1% or 2% of the rider’s face value, for a predetermined period. In some cases, the rider also waives your monthly life insurance premiums.
• Long-Term Care Rider: This is yet another type of ADB rider that lets you access your death benefit during your lifetime if you need long-term care in a facility or at home per a physician — and within the rider’s terms and conditions.
• Spousal Insurance Rider: It provides a death benefit in the event your spouse dies, which can make up for their income or help cover the cost of childcare that might then be needed.
• Waiver of Premium Rider: Exactly like it sounds, it waives your life insurance premium if you can’t work because you’ve become disabled as defined under the rider.
• Return of Premium Rider: This extra coverage makes you eligible to recover the premiums you paid on your life insurance policy if you outlive its term.
• Term Conversion Insurance Rider: With this rider, you have the option of converting your term life insurance policy into a permanent or whole life policy at the end of its term. [There are two basic life insurance options: term and permanent. Term lasts for a specific, pre-set period. Permanent lasts your entire lifetime or until age 99, at which point, the face value of the policy will pay out. Depending on your needs, you may want the affordability of term life as a temporary solution or the peace of mind that comes with permanent. “Whole life” insurance, is a type of permanent life insurance.]

Things to Consider About Life Insurance Riders

Although life insurance riders provide additional coverage that can be beneficial, there are some key things to consider before purchasing one:

• Adding a rider: The time to buy a rider is in conjunction with purchasing your base life insurance policy so that you don’t have to go through a separate underwriting process or medical exam.
• Dropping a rider: You can usually cancel a rider at any time, but confirm that before buying one.
• Reviewing its terms and conditions: Qualifying for a rider’s benefit depends on meeting its terms and conditions. Make sure you understand them before adding one to your base policy.
• Weighing the cost versus the benefit: Some riders are relatively inexpensive, but others can put more of a dent in your budget, so it’s best to understand how at risk you are of a particular scenario before buying a rider to cover it, especially if the coverage is going to be expensive.
• Looking at alternative options: Compare the cost of a rider to buying a standalone insurance policy that protects against the same scenario but might provide a different amount of coverage, such as AD&D insurance instead of an AD&D rider or your spouse’s own policy versus a spousal rider. You may also want to consider Long Term Care Planning through a wealth management advisor.

Understanding insurance can be tricky. Your agent or provider can help you determine whether a particular type of life insurance rider or policy makes sense for you.