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Life Insurance Rider Policies: What Add-Ons Are Right for You?

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So, you know you need life insurance, but what kind of policy is right for you? The answer is different for everyone. Depending on your situation, you can purchase a plan that offers the basic levels of coverage or customize your plan with rider policies that increase your benefits. Having 1 or more of these riders can put your mind at ease knowing that there's added security in the event of illness, accident, or death.

What Are Life Insurance Riders?

The term rider is a word that simply means an addition or change to a legal contract. You'll come across riders with various purposes in different industries, but in the world of life insurance, they're designed to enhance the benefits that you and your loved ones receive. While you could expect your premium to rise depending on the riders you include, but the added cost could be worth it in the end.

Common Types of Riders

The riders available to you depend on your insurance company. Not all companies offer the same riders, and not all riders are available in each state. Additionally, not everyone will qualify for every rider. However, there are common policies you'll see when shopping for insurance and they're generally divided into 4 different categories:

  • Living benefits
  • Accidental death
  • Family coverage
  • Structure of benefits

Living benefits

These riders allow you to use your benefits to pay for qualifying expenses while you're still alive. Depending on your policy, you might be able to access all or just a portion of your total benefit amount. Insurance companies also have specific rules for what circumstances they cover, so it's important to understand the terms of your plan.

There are 5 primary types of living benefit rider policies:

Also known as a terminal illness benefit, this allows you access to funds to pay for end-of-life care such as hospice. These are often free to add to your plan but require a doctor's confirmation that you don't have long left.

If a chronic illness has left you disabled, your benefits can help pay for your cost of living. A doctor must confirm that your disability is permanent and has left you unable to perform at least 2 of the Activities of Daily Living.

This rider can help cover medical fees for treatment should you get diagnosed with certain illnesses such as cancer, organ failure, ALS, and other critical conditions as defined by your plan.

Like with chronic illness riders, long-term care kicks in when you can no longer perform at least 2 of the ADLs and need ongoing assistance such as in-home nursing, which most insurance policies don't cover for extended periods of time.

If you become seriously disabled and can't work, you can waive your monthly premiums without losing coverage. The waiver will last until you can return to work or you reach the end of your policy. These riders are different than long-term disability insurance, which pay you a percentage of your lost wages.

Accidental death

In most cases, an accidental death rider pays your beneficiary a benefit in the event that there's an accident that leads to your death. It can also provide coverage if you lose a limb or digit due to an accident.

This rider provides additional funds above your policy level should you die or get dismembered from an accident. However, coverage levels are low and qualifying events are few, so having health and disability insurance is more strongly recommended.

Family coverage

Whereas primary life insurance policies provide financial coverage to your beneficiaries if you die, family riders pay funds to you if your spouse or children pass away. Though coverage is low, these small payouts can be used to cover medical costs, funeral expenses, and more.

A spousal rider can help pay for medical and funeral fees, as well as cover income that your family might lose or additional childcare costs you could incur. If you want to ensure that your family and financial situation are protected, it's recommended that spouses take out their own separate policies instead of adding riders.

In most cases, this rider can cover all the children in your care, even if you have additional kids after taking out the policy. It covers children up to a certain age—typically somewhere between 18 and 25—and pays you a set benefit amount regardless of how many kids you have.

Structure of benefits

While most rider policies are designed to pay out funds due to death, injury, or illness, other riders offer the ability to change the structure of how you receive benefits.

Specifically for term insurance policies, which lapse after a set period of time, the return of premium rider refunds you what you've paid toward the plan if you're alive when it ends. These come with higher premiums but can serve as somewhat of a savings account later in life.

Term conversion lets you choose to convert to a permanent policy at the end of your term insurance plan. If you decide you want to maintain coverage through the end of your life, converting could be cheaper than buying a new permanent plan since policies get more expensive as you get older.

For those with permanent life insurance plans, guaranteed insurability allows you to increase your death benefits at specific intervals without having to reapply. This can be great as you get older or if you have an illness, as you won't have to retake a medical exam.

Similar to guaranteed insurability, additional purchase lets you increase your plan without having to reapply. The primary difference is that this rider is meant to be used when major life events occur such as marriage or the birth of a child. You can pay less in premiums up front and only more when you know you need the coverage.

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