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Life Insurance Riders: What You Need to Know

Young Asian woman wearing a motorcycle helmet before riding. Hel

First things first: what is a rider? You start with your basic insurance policy, which for most people will meet all their needs and cover them just fine. But some people have special requests and want to customize the standard policy to meet their specific needs. A rider is an additional insurance policy provision that is attached to your main policy and rides along with it. Riders are sometimes called endorsements as well. Endorsements generally refer to a designation on the main document, such as an additional letter on a driver’s license that allows you to operate a motorcycle or different types of commercial vehicles on a commercial driver’s license. A rider, on the other hand, is more detailed and can be several pages long.
In this article, we’ll discuss the different types of riders that are most often sought as add-ons to basic life insurance policies. If the standard policy doesn’t meet your needs, consider adding a rider, but be warned – riders typically come with an additional fee. That doesn’t surprise you; we know. Insurance companies are in business, and they like to make money. Let’s look at some riders, shall we?

Accelerated Death Benefit – Terminal Illness

With this rider attached to your policy, you’ll be able to access a portion of the death benefit while you are still living to help pay for end-of-life expenses such as skilled nursing care or hospice care. The rider might not actually specify what you can and can’t use the money for, but it will normally only become effective if you are medically diagnosed with a terminal illness and are not expected to live for more than some short term, such as six months or a year. Unpaid end-of-life expenses will just end up as a charge against the estate and probably get paid out of life insurance proceeds anyway. With an ABD rider, you can ensure you have the money available to pay for the care you need, or even to travel for a final vacation or to see distant family and friends one last time.

Accelerated Death Benefit – Critical Illness

It’s also possible to get a rider for a critical illness that might not necessarily be terminal. This rider allows you to access a portion of the death benefit to pay for medical care when you have a listed illness that is spelled out in the rider. Generally, these are conditions that require long-term or expensive medical care, such as cancer, heart attack or stroke. You can also get a rider that will cover chronic illnesses that are not necessarily critical but nevertheless prevent you from performing at least two Activities for Daily Living, which is a term used in healthcare to describe the fundamentals of self-care, such as eating, bathing, dressing, getting in and out of bed, and going to the bathroom.

Long-Term Care

Long-term care insurance is often purchased as a standalone policy while you are young and healthy and can get a good policy at an affordable premium. You could also add long-term care insurance as a rider to your life insurance policy. This coverage kicks in if you are unable to perform at least two Activities for Daily Living. LTC riders are among the more expensive life insurance riders you will encounter.

Other Family Members

Life insurance policies only cover one life at a time. If you want to insure the lives of both you and your spouse, for instance, you would each need your own life insurance policy. However, it is possible to just have one policy for yourself and add a rider for your spouse or children. A rider can often be had for a lesser cost than a separate policy, and you can purchase just enough coverage to pay for funeral costs, assuming you won’t need funds to replace a primary or second income or pay off the mortgage.

Term-to-Life Conversion

If you have term life insurance, a term conversion rider will allow you to convert your term policy to a whole life policy at the end of the term without going through underwriting, a physical exam, etc. Your term policy might already include this rider without you having to purchase and pay for it separately. A term life insurance rider that does cost extra – a lot extra – is a rider that pays back your premiums at the end of the term.

Guaranteed Insurability

This rider is typically for whole life policies rather than term insurance. It allows you to increase the death benefit at various periods without having to go through underwriting. Different life events such as marriages and births can trigger the opportunity to increase coverage (and premium), even if your health has worsened over time.

Accidental Death & Dismemberment

AD&D policies can also be purchased separately from life insurance, and they are often available as a fringe benefit through employment or membership in a professional association. As a rider to your life insurance, the policy will cover if you become seriously injured and lose a limb or body part or if you die in an accident. This rider is beneficial for people with dangerous jobs or hobbies, but the riskier the lifestyle, the more expensive the premium. Also, beneficiaries who make a claim on these policies often find themselves fighting with the insurance company over whether the incident counted as an “accident” within the meaning of the policy.

Premium Waiver

This rider will waive your premium payments on your life insurance policy if you become disabled from working. This can certainly be a valuable benefit, but be sure you understand the way “disability” is being defined in the rider. There are many different ways insurance companies define disability, and if the definition is too strict, it might not end up helping you very much when you need it. One example is whether the policy requires you to be disabled from working in your “own occupation” or “any occupation.” Even if you have the more favorable “own occupation” language, you can still expect a fight over what that means if you do in fact become disabled and need to take advantage of this benefit.

Final Thoughts

Life insurance is essential for most people to protect their assets and ease the financial burden of losing the family’s primary wage earner, household manager or any beloved member of the family. It’s important to make sure you get enough coverage to meet your needs, and if you have special needs beyond what the basic policy offers, consider customizing your policy with one or more riders tailored to your specific needs. Make sure you know what you are getting and getting into, though, because insurance companies don’t always like to make big payouts. If you are claiming life insurance benefits and the insurance company is unreasonably delaying payment or denies your claim, it’s time to get an experienced insurance law attorney on your side to make sure you are being treated fairly and get the benefit of the policy you bargained for.

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