Although the majority of consumers are well-informed that term insurance is the most economical life insurance on the market, most are unaware that there are many riders available that can assist them in customizing their policy, thereby resulting in coverage that meets both their budget and needs. However, despite doing a quick internet search of both the advantages and disadvantages of term life insurance, it remains difficult to locate valid information about the available riders most carriers offer.
In order to select broader coverage at a reasonable price, consumers will want to look at the numerous riders that are available prior to purchasing term life insurance.
Accidental Death Benefit
This rider, most often called “double indemnity”, allows the insurance provider to pay double the face amount in the event that the insured dies as a result of an accident. Usually, the policy specifies what is termed an “accident”, as well as the maximum amount of time that can transpire between said accident and the policyholder’s demise.
Accelerated Death Benefit (ADB)
Even though the Accelerated Death Benefit is regarded as a rider, it is now a factor within the core coverage for most life insurance carriers, and it does not cost anything extra. This rider allows the insurance provider to pay a chunk of the death benefit to the policyholder, contingent upon the insured being diagnosed with an incurable illness that will most likely lead to death in less than 12 months. An advance of the death benefit assists the policyholder with paying for end-of-life medical expenses, as well as all other final expenses he or she feels is necessary. Upon the death of the policyholder, the leftover death benefit will then be paid to the beneficiary.
Guaranteed Insurability Rider
Deemed a rather important rider for young adults, the Guaranteed Insurability Rider allows a consumer to buy additional life insurance without needing to substantiate insurability. This rider is an excellent way to increase the insured’s death benefit in order to be certain that the insured’s surviving loved ones are protected financially. The Guaranteed Insurability Rider helps with major life changes, such as home ownership, marriage, and childbirth.
Waiver of Premium Rider
In the event that an insured becomes disabled and is having difficulty paying the insurance premium, the Waiver of Premium Rider allows for the policy to stay in force by waiving the premiums. The conditions of this rider are outlined within the policy and generally contain a minimum period of coverage prior to the activation of the rider, a waiting period, and what’s considered a disability as described by the company. Once the insured reaches the age of 60, most providers remove the rider.
Long-Term Care Rider
Both the underwriting requirement and the cost can make buying a traditional long-term care insurance policy difficult. However, adding an insurance rider can allow the consumer to purchase coverage at a modest price. Equivalent to the Accelerated Death Benefit, mentioned above, this Long-Term Care Rider allows for the provider to pay a substantial amount of the death benefit should the policyholder become diagnosed with all illness requiring them to reside the remainder of their life in a nursing facility. It’s crucial for an applicant to understand all of a rider’s terms and conditions before electing it since those terms and conditions vary by company.
A very important option available during the selection of term life insurance is the Term Conversion Rider. With this rider, the insured has the ability to switch all or part of their existing life insurance policy to a permanent form, such as whole life or universal life insurance. During the underwriting process, only the policyholder’s age is considered with this conversion. Since medical exams and health questions are not required, approval for permanent life insurance is guaranteed.
Since Alex is converting his term policy to a permanent one, his new policy is more affordable because Alex has reduced the death benefit and his new health conditions have no effect on the premium.
Return of Premium Rider
In the event that an insured outlives the term of their policy, the Return of Premium Rider allows for all premiums paid in to be returned to the insured. The money paid back will be tax-free and in a single lump-sum.
This optional rider makes perfect economical sense especially for younger adults due to the minimal cost involved. Typically, the additional cost for this rider is between 20 and 50% considering the age of the applicant. The Return of Premium Rider is an outstanding living benefit for the policyholder that survives their policy, with a significant refund of premiums that can then be used for buying additional insurance, investing in a retirement plan, or paying off a mortgage.
Additional Insured and Child Term Riders
These two invaluable riders allow for an applicant to add their spouse and/or children to their term life insurance plan, thereby producing a family life insurance plan at a substantially lower cost than accumulating separate policies. The Additional Insured rider allows an applicant to provide insurance for their spouse up to the existing face amount, plus their children within the household for an amount specified by the insurance provider. An added benefit to the Child Term Rider is that all existing children plus future children, both born or adopted, will be covered under the insured’s selected death benefit.
Courtesy of the mentioned riders, applicants can expand on the coverage of a term life insurance policy, while choosing several of the living benefits for the policy. Even though term insurance only provides temporary coverage and does not build up cash value.
The insured, however, has the ability to receive a lump-sum cash refund while utilizing the Return of Premium Rider or by converting to a permanent life insurance policy while utilizing the Term Conversion privilege. Term insurance now has the power to be more than a death benefit courtesy of these important riders.
Frequently asked Questions
Is the return of premium rider worth it?
With most carriers, the return of premium rider is a great value if you purchase your policy before turning 40. It is, however, a solid solution for individuals who do not prioritze regular savings and need a forced-savings program that can be used for retirement planning.
How much does the accelerated death benefit cost?
Most insurers are including the accelerated death benefit as part of the core policy coverage but if you find that’s not the case, adding this rider will have a minimal impact on your monthly premium.
How important is term conversion?
The ability to convert a term policy to a permanent one is an essential option when buying term insurance. The conversion option will allow a policyholder to convert all or a portion of their term insurance to a permanent policy like universal life without having to worry about health issues. The rate class you received on the term policy will be the class used for the permanent one. Plus, many companies offer a premium credit toward the new permanent policy.
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In my 20+ years as an independent life and disability insurance broker, I have personally assisted thousands of clients with their life and disability insurance needs. Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client.
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