Tag Archives: insurability

Insurance Riders

Insurance Riders

You’ve worked out how much life insurance you need.   A collection of life insurance policy add-ons, called Insurance riders, must be considered. Insurance Riders can give policyholders additional benefits.

They increase peace of mind, that if something goes wrong, there is a Plan B.  When you buy life insurance, available Insurance riders vary by insurance company.   Costs also vary and depend on many factors, including your age, health and type of policy.

1.  Waiver of Premium Insurance Rider:

A waiver of premium rider usually associated with life assurance may be inserted into a policy at an extra cost.  The policyholder must have been disabled for a specific period, for example, six months.  Other requirements may be necessary such as the state of health of the policyholder and must be below a certain age.

2.  Disability Income Insurance Rider:

This is one of the most common riders and one that may be particularly important to younger policyholders (typically, those under 40).

This rider generally cannot be added after you reach age 45, although some insurers make it available through age 50. (https://us.axa.com/insurance/disability-income/insurance-riders.html) You collect a regular income from the insurance company if you become totally disabled and can’t work.  The policy specifies the amount of the income and whether it’s paid for a certain amount of time or for the length of the disability.  Some disability income riders pay out only if you become disabled from an accident while others pay on accident and sickness.

3.  Guaranteed Insurability Insurance Rider:

This rider provides specific dates on which additional life insurance policies can be bought.  Usually, the older the insured gets, the fewer dates the policy owner has to purchase more life insurance. (http://www.lifeinsurancewiz.com/LifeInsurance/LearningCenter/guaranteed.htm) This rider lets you purchase additional life insurance at a later date without undergoing a medical exam or providing any evidence

This rider lets you purchase additional life insurance at a later date without undergoing a medical exam or providing any evidence of your insurability.  Because you never know how your health could change, it makes sense to consider this rider.

4.  Term Conversion Insurance Rider:

Provides coverage for a certain period of time, such as 10, 15 or 20 years.  Permanent life insurance, such as whole life or universal life, provides coverage for your entire life, so your beneficiary receives a benefit no matter when you die.

This insurance rider lets you convert term life insurance into permanent life insurance without undergoing a medical exam.  It is especially attractive to young people starting careers and families who need life insurance but don’t have enough money yet to secure all the coverage with permanent life insurance, which has higher premiums than term life. There will be a deadline for when you must

There will be a deadline for when you must convert if you want to change the term policy to permanent life insurance without providing health information.  Understand the convertibility features before you buy.

5.  Accelerated Death Benefit Insurance Rider:

Accelerated Death Benefit Rider has become standard in the insurance industry and is usually included automatically for free or offered at nominal cost.  The rider lets you collect a portion of the policy’s death benefit if you become terminally ill with a short life expectancy, such as one year.  The policy spells out how much of the death benefit is available before death.  Usually its capped at $250 000 to $500 000.  You can use the proceeds for anything, such as paying medical bills or living expenses.  Even though the insurer offers the rider free, the company may charge a fee if it is exercised.

6.  Critical Illness Insurance Rider:

A rider added to a life insurance policy to protect the insured against financial loss in the event of a terminal illness.

The insurer pays a lump sum if you’re diagnosed with any of the critical illnesses specified in the insurance policy, such as cancer, heart attack, coronary artery bypass, major organ transplant, stroke, kidney failure. (http://www.moneycontrol.com/glossary/insurance/critical-illness-rider_333.html).   Instead of reimbursing you for medical expenses, the way health insurance does, the rider provides money to use for any purpose during the course of the treatment.

Instead of reimbursing you for medical expenses, the way health insurance does, the rider provides money to use for any purpose during the course of the treatment.

7.  Child Protection Insurance Rider:

No one wants to consider the possibility of losing a child, so all emotion must be set aside when considering a child protection rider.  Although the death of a child typically would not result in income loss, as would the death of a spouse, the tragedy still would have financial consequences which could be an additional hardship for a bereaved family.  This term life insurance rider provides coverage for final expenses in case the unthinkable happens.  The coverage generally can be purchased in units –  for example $1000.  Basic information about the child’s health is required for underwriting.

 This term life insurance rider provides coverage for final expenses in case the unthinkable happens.  The coverage generally can be purchased in units –  for example $1000.  Basic information about the child’s health is required for underwriting.

8.  Accidental Death Benefit Insurance Rider:

If you die from an accident, this rider provides an additional benefit on top of the policy’s regular death benefit. The option is often referred to as double indemnity when the additional payout equals the original death benefit.  Sometimes the rider also includes additional payment for dismemberment.  You would collect money if you lost a limb or your sight.  Life insurers will consider your occupation and hobbies when determining premiums.

9.  Return of Premium Insurance Rider:

If you live to the end of the term, in exchange for paying the premium, in most circumstances you get all your money back. Some companies use a separate rider where others, like ING, write the return of premiums benefit into a basic policy.  You pay a higher premium for the opportunity to get your money back.  The big question to consider.  How does paying the extra cost for the return of premium rider compare to investing that money and buying a basic term policy instead? To find the answer, subtract the annual premium for a basic term policy from the annual cost of a return of premium policy.  The difference is how much you would have to invest each year during the insurance term.  Then calculate what annual rate of return you’d need on that money to beat the amount you’d get back from a return-of-premium policy.

Conclusion:

There is no one-size- fits- all answer to whether any of these Insurance riders are right for you.  You’ll need to weigh policy options to find the best package for your needs. (http://www.foxbusiness.com/personal-finance/2011/05/25/useful-life-insurance-riders/)

Remember – money from the return of premiums is tax-free, but your own investment returns are taxed.  In some cases (depending on age, sex, tax bracket and other factors), you’d need to get more than a 7% rate of return on your investment to beat the return of premium policy