When you sign up for a new life insurance policy, you have the choice of including riders. These are extra, optional benefits you can purchase for your contract. Here's what you need to know about life insurance riders, including the most popular types, so you can decide what makes sense for your needs.
How Do Life Insurance Riders Work?
A life insurance contract lays out the terms, conditions and benefits for your coverage. As part of your application, you have some flexibility to decide what will go in your contract. Riders are additional add-ons, which you can choose to include on top of the standard life insurance death benefit.
For example, you can add a disability waiver, insure other family members and give yourself the right to buy more insurance later without having to take a medical exam. Some riders are free and automatically come with an insurance company's policies, whereas others are an extra charge and you can decide whether to buy them on top of your life insurance death benefit.
What Are Some Popular Riders?
Disability Waiver of Premium
If you ever get a serious disability that prevents you from working, this rider has the insurance company waive (stop charging) your insurance premium. That way you can keep your coverage without paying for it, helping your budget during this financial hardship.
To buy more life insurance, you usually need to reapply and go through medical underwriting again, so there's a chance you could be denied for health issues you've developed since initially signing up. With a guaranteed insurability rider, you can buy more coverage in the future without going through medical underwriting. The rider will lay out the conditions for how much more you can buy and when, like every five years or after major life events, such as having a child.
If you die in an accident, like a car crash or a fall down the stairs, a policy with this rider would pay your heirs a larger death benefit.
Accelerated Death Benefit
If you are diagnosed with a serious, terminal disease, you could be facing considerable healthcare expenses before passing away. With an accelerated death benefit rider, your life insurance policy would pay out some or even all your insurance death benefit, so you can spend it while alive to help cover these expenses. There are also riders that will pay out part of your death benefit after serious illnesses, like cancer or a heart attack.
You can also set up your life insurance to help cover long-term care costs. If you end up needing care in a nursing home, in an assisted nursing facility, or for an at-home nurse, this rider would pay out part of your death benefit so you can use the money to cover these costs. It's a way to combine life insurance with long-term care insurance, all in one plan.
Return of Premium
You can buy a return of premium rider on term life insurance policies — those that are temporary and only last a set amount of time, like five or 20 years. If you outlive the term and don't receive the death benefit, then the insurer will refund you some or all of the premiums you paid, according to the rider conditions.
With this rider, you have the option to switch your temporary term coverage into permanent life insurance that will not expire. You won't have to take a medical exam to make this switch. You could use this rider to buy less expensive term life insurance at first, with the plan to convert to permanent once you can afford to make the switch.
Child and Spouse Insurance
You can also use riders to set up life insurance for other family members so they don't have to apply on their own. A child term rider would give coverage to your kids, including those you have in the future. It's temporary coverage that lasts until they turn 18, when the rider will often allow them to buy their own policy. A spouse rider provides life insurance for your spouse. Note that if you cancel your policy, your family members will also lose any insurance they were receiving through this rider.
How Do You Set Up Riders?
An insurance company might offer some riders for free on all their policies. Others, you would need to apply for when you first sign up for coverage and put them in your original contract. After your purchase, you may be able to add some riders, like the return of premium feature for term coverage. Others, like the disability waiver, usually can only be added when you first sign up. If you missed out on one of these rider benefits, you would need to apply for a new policy, either replacing the one you already have or by buying more than one policy.
Before this is all set, the insurance company will review your application, including how much coverage you want and your riders. It will then decide if you qualify for the insurance coverage you requested and at what cost. The premium quote will also show how much each rider costs, so you can decide if you want to move forward with them.
What Are the Pros and Cons of Life Insurance Riders?
The main advantage of life insurance riders is that they create extra benefits for your insurance policy. Not only do they allow you to cover other issues, like disability and long-term care, they also help you keep your insurance options open, like by giving you the right to convert to permanent coverage or to buy more insurance in the future. Riders are also a convenient way to cover other people such as your spouse and children.
However, riders do have some disadvantages. The main drawback is that they usually cost money, so the more riders you add, the more expensive your life insurance coverage will be. You also need to qualify for them as part of your application, which isn't guaranteed. For example, if the insurer determines you have a preexisting disability, it likely won't allow the disability waiver of premium rider. There also could be rules and restrictions for using the rider benefits — like a disability waiver may only cover you if your disability prevents you from working any job, not just your current position.
Last, a rider might not offer as much coverage as a standalone policy. For example, your spouse might get better coverage buying their own individual policy versus getting insured through a rider.
Should You Use Riders for Your Life Insurance?
Whether riders make sense depend on your financial and insurance goals, as well as your overall budget. Since riders cost money, make sure that you still have enough left over for your insurance budget to buy a death benefit to cover your needs.
As you apply, weigh what seems essential — coverage for long-term care may give you peace of mind, but a nice-to-have like extra accidental death coverage doesn't necessarily seem vital. Then, you can see how much the riders might cost and set your priorities from there.
For more help learning what life insurance riders are available and which might make sense for your policy, discuss your options with an insurance agent. They can help you find the right coverage mix based on your budget and goals.