Life Insurance Riders

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Life insurance riders are used to enhance the coverage that your base life insurance policy offers.  Some riders are automatically included with your policy at no additional cost.  Other riders will cost extra to add to your policy.  Below is a list of the common life insurance riders that most carriers offer.  It is important to read your policy and see what is offered.  Your agent or broker can explain the costs and benefits of each rider.

Child Rider - an inexpensive and easy way for parents to get their children (natural, adopted, or stepchildren) insured without having to buy a separate policies on each child.  

  • Typically available for children 15 days old to 18 - 25 years of age depend on the carrier.  At 25 years old, (may be different for some carriers) the rider expires.
  • For a flat rate,  you can insure some or all your children that qualify.  It costs the same regardless of the number of children you add.
  • No underwriting is required
  • Some policies allow you to convert all or part of the children's term rider into a permanent policy regardless of child's health.

Wavier of Premium Rider - allows you to skip paying premiums if you become totally disabled and unable to work.  The policy will remain in force and will not lapse even though you are unable to pay the premiums.  You WILL be required by the company to prove you are totally disabled in order for the rider to go into effect.

Disability Income Rider - provides a supplementary income benefit if you were to become totally disabled.  Typically, the disability income benefit is specified as a percentage of the face amount, and is payable monthly.  For example 1% of $100,000 face amount = $1,000 / month

Return of Premium Rider - Returns the exact sum of your premiums at the end of the term period if you do not die.   In other word, you get all the money back you paid for the policy. 

Accidental Death Benefit Rider - Pays an extra death benefit if the official cause of death on your death certificate is listed as an accident.  Does not pay and extra death benefit if the cause of death is anything other than an accident.

Term Conversion Rider - Allows you to exchange all or part of your term insurance policy for a new permanent policy WITHOUT having to take a medical exam.   The health class from the term insurance policy will carry over to the new permanent policy.  For example, if you were Preferred Non - Smoker on the term policy, you will be Preferred Non-Smoker on the new permanent policy.  The rates for the new policy will be based on the your attained age at the the time the conversion occurs. Restrictions may apply.  For example,  some policies read "can convert the policy in the first 10 years or to age 65 which ever comes first".  Always consult the policy for the details.

Accelerated Benefit Rider - Accelerated benefits in a life insurance policy gives the policyowner access to some amount of the policy’s available death benefit if the insured experiences a qualifying event—a terminal, chronic, or critical illness—for which immediate cash can be used.

There are three basic conditions known as benefit triggers that insurers have adopted as grounds for payment of accelerated benefits:

  • terminal illness 
  • critical illness or critical injury
  • chronic illness

Terminal Illness - A terminal illness condition that qualifies for the payment of accelerated benefits is usually defined as one that will result in the insured’s death within a specified period of time (typically 12 to 24 months).  The time period begins when the insured is certified as having a terminal illness. Depending on the state, policies that offer accelerated benefits may be required, at a minimum, to make terminal illness a condition for the benefits.  It’s common for benefits under a terminal illness condition to be paid in a single lump sum.

Critical Illness or Injury - A critical illness or injury is a life-threatening condition which, without medical intervention, is likely to result in death or in a drastically limited life span.  Such conditions include:

  • major heart attack
  • coronary bypass
  • stroke
  • cancer
  • organ transplant
  • kidney failure
  • paralysis
  • coma
  • blindness
  • severe burns

Depending on the policy, a waiting period may be required in order for benefits to be accelerated for a critical illness.  For example, a company might specify that the rider must be in force for at least 30 days prior to the insured experiencing or being diagnosed with the qualifying trigger in order for benefits to be advanced.  This stipulation would not apply to conditions caused by an accident. The effective date for accelerated benefits for a critical injury is the date of the policy or rider.  A critical illness or injury benefit can be included along with a terminal illness benefit within the same policy.  Moreover—and again, depending on the policy and state in which it is issued—an insured who, due to underwriting, is denied coverage for a critical illness may still be issued a stand-alone terminal illness benefit.

Like accelerated benefits for terminal illness, those for critical illness are usually paid in a lump sum.  They may be particularly attractive for individuals who have a family history of such illnesses.

Chronic Illness - A chronic illness is the experience of living with a long-term physical or mental deficiency or disorder.  As a condition for accelerated benefits, it is usually defined in terms of the inability to perform a certain number of activities of daily living or as severe cognitive impairment, requiring constant supervision, an ailment that is typically controllable but not curable. 

Activities of daily living, or ADLs, are defined as:

  • bathing
  • eating
  • dressing
  • toileting
  • transferring
  • continence

Accelerated benefits payable based on ADLs typically require that the insured be unable to perform two of the six activities.  Benefits payable based on cognitive impairment require that the insured must need substantial supervision.  In addition, the insured must have been certified as being chronically ill within 12 months preceding any claim for benefit.

In many cases, qualifying for accelerated benefits under a chronic illness certification could require that, in addition to meeting the ADL or cognitive impairment criteria, the condition must be permanent. If, for example, an insured suffered a broken hip, was immobilized for three months (needing care at home) and then recovered, he or she may not qualify for chronic illness acceleration. 

Benefits under a chronic illness rider are typically defined as some percentage of the policy’s death benefit (70, 90, or 100 percent, for example), paid in a series of periodic payments, such as monthly.  For example, the full benefit amount might be defined as 90 percent of the policy’s death benefit, paid as monthly payments of 3 percent of that amount.

Cost of Living (COLA) Rider - increases the policy death benefit to coincide with increases in the  Consumer Price Index (CPI).  Keep in mind if the death benefit increases, so does the premium.  It is important to note that the death benefit DOES NOT decrease if the CPI decreases.

Guaranteed Insurability Rider - this rider allows you to purchase additional life insurance in the future without having to prove how healthy you are.  The option to purchase more coverage can be made only at specified times or for certain life events such as a marriage or the birth or adoption of a child. 

Written by:  Chris Lalor

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