Just like you can get a cup of coffee with or without milk, riders are optional additions you can get with a life insurance policy to customize its benefits and expand the value you and your family can get from it.
In this article, we will go through the basics of life insurance riders, and look at the most common ones, to help you on your journey towards a better financial future with life insurance.
This article is written as general education, and should not be considered as personal financial advice. If you would like personal guidance with life insurance, you can schedule a time to talk with one of our experts.
What are life insurance riders?
Life insurance riders can be thought of as optional add-ons you can get with your policy, which will provide you with additional benefits from the policy - usually at an extra cost, but sometimes for free.
While riders do vary from insurance company to insurance company, they all provide you with extra benefits or protection and can be a valuable consideration when getting a policy.
In general, riders provide one of these types of benefits:
- Extra money when you’re alive
- Additional life insurance protection
- More policy features
In the rest of this article, we will review some of the most common riders from these categories.
Riders Providing Extra Money When You’re Alive
Long Term Care Rider
This rider allows your life insurance policy to double as a long term care insurance policy, meaning that it can cover your costs if you become unable to live independently and need professional care.
The rider can cover costs such as nursing homes, in-home care providers, or assisted living facilities.
The cost of assisted living is higher than most people expect - for example, a private room in a nursing home can today be as much as $105,850 per year, which is why this rider can be a good way of protecting yourself from the financial risk, and be able to afford a worthy living quality into the end.
Paid Up Additions Rider
This rider is unique to whole life insurance policies, and is a rider that helps you build cash value in your policy quicker by adding additional paid-up insurance, where the vast majority of the money spent on this rider will go straight to the cash value.
If you are buying whole life insurance primarily to use it as a savings vehicle, this is the rider that you want as much of your premium as possible to go towards.
There are however limitations on how big the paid up addition can be in comparison to the death benefit, which you can learn more about in this article.
With an increased cash value growth in your policy, this rider will allow you to increase your use of the policy during your lifetime to for example supplement retirement income or finance investments.
Additionally, by allocating a larger portion of your premium towards this rider you will pay less fees on your policy, as most fees are associated with insurance related charges, and not the cash value.
When you buy a policy for investment purposes through White Swan, we always design them using this rider to provide you with turbo-charged investment properties and the most cash value growth possible for your premium.
Waiver Of Premium Rider
The waiver of premium rider will cover your premium payments in case you become seriously disabled and no longer able to work.
Disability Income Rider
The disability income rider goes one step further than the waiver of premium rider by also providing you with an income in case you become permanently disabied.
With this rider, you will get monthly income payments as a percentage of the total policy’s coverage amount if you become seriously disabled.
Terminal Illness Death Benefit Rider
This rider can pay out a part of the death benefit before you are dead if you get diagnosed with a terminal illness giving you 6-12 months left to live.
You can use this money to pay for medical or care expenses, but you don’t have to.
You can also use the money to make your last time as enjoyable as possible by paying for things like vacations or experiences.
Riders Providing You With Additional Protection
Spousal Insurance Rider
The spousal insurance rider can provide additional insurance coverage for your spouse and can pay you and your beneficiaries money in case your spouse dies.
Generally, the coverage on the spouse is less than the coverage on the main policy, but getting coverage for the spouse in this way is also less expensive than taking out a separate policy.
This rider is extra helpful if both spouses contribute to the household income, but can also be helpful to cover costs like additional childcare costs if one spouse were to die.
Child Term Rider
This rider provides you with coverage in case the unthinkable happens and one of your children die before becoming adults.
In general, the cost of this rider is low, at an average of $5.60 per month, but can provide important coverage, and once the child becomes an adult the coverage can be converted to a permanent coverage as big as five times the original amount.
While life insurance for children sounds absurd, as the vast majority of children don't have people being financially dependent on them, it can generally make a lot of sense to instead of a child term rider get a separate policy for your children.
This is because life insurance coverage is naturally cheaper the younger the insured person is, and by getting a permanent life policy for your child, you can lock in cheap coverage for them for life.
In addition to this, you as a policy owner can access its cash value, which can build up quicker than if you paid the same premium into a policy insuring yourself.
Term Insurance Rider
A term insurance rider can be added to a permanent life insurance policy to boost the death benefit of the policy for a limited number of years, such as your working years, or the years while your children still live at home.
This rider helps you make sure that your loved ones are covered enough during the years when it’s needed, while allowing you to keep your permanent coverage at a lower level to make the policy more efficient for investing and/or to save money.
Cost of Living Rider
The cost of living rider will gradually increase the death benefit (but also the premiums) according to inflation numbers to ensure that policy values will be sufficient with future inflation, which might have a very large effect over the long term.
Accidental Death Rider
This rider increases the payout of your life insurance, up to double the amount, if you die from an accident covered under the rider.
While this rider might be a good choice for people with dangerous jobs or hobbies, the definitions of accidents are generally very strict, which makes this rider less worth it for most people.
Riders Providing You With More Policy Features
Charitable Benefit rider
The charitable benefit rider is usually free and enables your policy to help make the world a better place as the insurance company will pay an extra 1 % of your death benefit to a charitable organization of your choice.
This rider is just one of the many proofs of the empathetic and philanthropic aspects of life insurance, and should be chosen by everyone who can do it - after all, it helps support your favourite charity, at no extra cost to you.
Guaranteed Insurability Rider
The guaranteed insurability rider allows you to increase your coverage in the future without having to prove insurability or take medical exams.
If your future health declines, this rider will make sure that you can get the same health rating as you have now, which will make it cheaper for you to get more insurance in the future.
This rider can be especially helpful if you are in the beginning of your career, and might have less income to spend towards your policy now, but want to make sure that you can put more money into life insurance in the future.
It can also help to make sure that your coverage can adapt with major life events like marriage, getting a mortgage, having kids, or putting your kids through college.
Overloan Protection Rider
The overloan protection rider helps you to keep your policy in force if your policy loans grow too large, which protects you from the tax consequences of surrendering your policy.
The way this rider works is that if the loan balance grows beyond a 90-98 % of the policy’s cash value, it gets triggered, and freezes the policy to make sure it remains in force until the insured dies.
When the rider is triggered, no more premium payments or loan repayments are required, but the death benefit is also decreased and there is no longer any access to dividends or loans.
This rider can be valuable if a policy is used for retirement income, as it helps avoid negative tax advantages if the total loan grows too big to handle.
Index Participation Rider
An index participation rider is offered for whole life policies such as those from Guardian, and allows you to allocate between 0 % and 100 % of your cash value to a stock index, subject to downside protection and a maximum return, similar to the cash value accounts of indexed life policies.
This can help to give you more investment flexibility within a whole life policy, and allow you to get a higher return during the years where a stock index such as the S&P 500 is performing well.
Term conversion rider
The term conversion rider is available for term life policies and allows you to convert the policy into a permanent policy at the end of the term, and is usually included for free.
If you decide to apply for a policy via White Swan, you can pick the riders that you want at the application stage.
As we have understood in this article, some riders provide very valuable additional benefits to your life insurance policy, while some might rather cost more than they provide.
If you need any help in deciding which riders are right for you, our team of industry experts are available for helpful, no-pressure advice.