When you take out a life insurance policy, one thing that’s easy to overlook is the range of optional extras you can add to it. These are usually known as riders and often come with added premiums. But, in some cases, these riders could save you money should an unfortunate event occur.
If you’re not sure how life insurance riders work, this article is for you. In it, we will go over what these extras are and the different types you can consider depending on your needs. Let’s dive in!
What is a life insurance rider?
A life insurance rider is an additional benefit that can be added to a life insurance policy. Riders can provide extra protection or benefits, such as accelerated death benefits or living benefits. They can also be used to modify a policy to better fit the needs of the policyholder.
Most life insurance policies come with basic coverage, but you can use riders to customize yours to fit your unique needs. For example, someone with a young family might want to add a rider that would provide additional death benefits in the event of their death. Or, someone who is concerned about being unable to work due to an illness or injury might want to add a rider that would provide them with some level of income if they are unable to work.
Riders can be added when a policy is first purchased, or they can be added later on as needs change.
3 common types of life insurance riders
Many life insurance companies offer a variety of riders, so it’s important to compare options and find the best fit for your needs. The following are the three most common riders you may consider.
Critical illness rider
This rider pays out a lump sum benefit if the policyholder is diagnosed with a specified critical illness. The illnesses covered by a critical illness rider vary by insurer, but typically include conditions such as cancer, heart attack, stroke, and kidney failure.
Most critical illness with life cover riders will pay out the benefit regardless of whether the policyholder survives the illness, making it a valuable form of financial protection for families.
Critical illness riders are typically available as an add-on to life insurance policies, but can also be purchased as standalone policies.
Guaranteed insurability rider
A guaranteed insurability rider protects against the possibility that you will develop an illness or condition that makes you uninsurable in the future. This rider guarantees that you will be able to purchase additional life insurance coverage, even if your health has declined.
The rider typically provides for the purchase of additional coverage at specific intervals, such as every five years. The amount of coverage you can purchase with a guaranteed insurability rider is usually limited, and the premium payments may be higher than for a standard life insurance policy.
Guaranteed insurability riders are often included in term life insurance policies, but they can also be added to whole life or universal life policies for an additional premium.
Accelerated death benefit rider
An accelerated death benefit rider is a life insurance rider that allows the insured to receive a part of their designated death benefit while they are still alive if they are diagnosed with a terminal illness. The purpose of this rider is to allow the policyholder to use the money from the death benefit to cover expenses related to their illness, such as medical bills or end-of-life costs.
This rider is typically only available on permanent life insurance policies, and not on term life insurance policies. That’s because with a term life insurance policy, the death benefit is only paid out if the policyholder dies during the term of the policy; there is no death benefit paid out if the policyholder lives beyond the term.
The amount of money that can be received from an accelerated death benefit rider varies depending on the insurer, but it is typically between 50% and 75% of the total death benefit.
Keep in mind that by choosing to receive an accelerated death benefit, you will reduce the overall death benefit that your beneficiaries will receive when you die.
Conclusion
Adding a life insurance rider to your policy can provide you with additional coverage and peace of mind. Riders are typically very affordable, and they can be added to both new and existing life insurance policies.
Be sure to work with your life insurance agent or company to find the right riders for your needs, as there is a wide range available. By doing so, you can tailor your policy to fit your and your family’s specific needs.
