Life insurance riders are the unsung heroes of a life insurance policy. Riders add extra features to your policy that supercharge your life insurance.
Unfortunately, these riders are often forgotten about as soon as the policy is delivered and thrown into a drawer.
Today, I’m going to give you the complete lowdown on 13 different types of life insurance riders and how they work.
Then, you can look at your own life insurance policy to see which riders were included on your policy.
But first, let’s get started by going over what a life insurance rider is.
What is a life insurance rider?
Whenever you buy a life insurance policy, you have the option to add additional features to your life your insurance. These additional features are attached to your base life insurance contract and they sit on top of or “ride” on it under one contract.
Hence the name, riders.
This means that while you’ll only receive only one life insurance contract, it can do several things for you in the future.
That’s as long as you don’t forget you added them.
Which most people do.
What riders you can include on your life insurance policy depend on the type of policy you buy.
Different types of riders are available for term, whole life and universal life insurance policies
The type of life insurance you have – whether it’s term, whole life or universal life insurance – dictates what type of riders you can add that specific type of policy.
While some riders can be added to any type policy, others can only be added to certain types of policies.
Whether you decide to add a rider to your life insurance or not, often depends on how much it costs.
Do life insurance riders require an extra premium?
Whether you pay an extra premium for a life insurance rider depends on the type of rider and the insurance company.
There are three ways life insurance premiums for policy riders can work.
- No extra premium, no extra fee if the rider is used These riders are essentially free and should be added to every policy that they can be added to.
- No extra premium but a fee is charged if the rider is used These riders are also free to add but if you exercise the rider, a fee is taken out of any benefit you would receive. These riders should also be added to every policy they can be added to. You can decide later if it is worth exercising the rider.
- Extra premium, no extra fee if the rider is used You’ll need to pay an extra premium to add these riders but no extra fee is charged if they are exercised. It will be up to you to determine if you want to pay the extra premium to add the rider to your policy.
Now you know the basics of how life insurance riders and premiums work, let’s get more specific in terms of the riders available and what they do.
13 different types of life insurance riders
Here is an extensive list of life insurance riders you might see. I have included 13 categories of riders. Some riders have several variations. That means there are technically more than 13.
Here they are:
- Accidental death benefit rider An accidental death benefit rider provides an additional death benefit in the event the insured dies in an accident. The usual benefit amount is double the face amount of the base policy. That’s why it’s often called “double indemnity.” It might be more if the accidental death is caused by a common carrier accident. Sometimes accidental death benefits include dismemberment benefits. In that case it would be abbreviated as AD&D. This rider generates one of the most frequently asked questions I get which is – what is accidental death?
- Waiver of premium rider Waiver of premium pays the premium in the event of a disability. If a long term disability occurs, after an elimination period of like six months, the insurance company would then begin to pay the premium. I’ve seen three types of premium waivers during my career.
— Insured waiver of premium rider This waiver pays the premium in the event of a disability of the insured covered under the policy.
— Payor waiver of rider This waiver pays the premium in the event the payor of the policy is disabled. It’s most commonly used on juvenile policies owned by the parents.
— Strike waiver of premium rider The strike waiver of premium pays the premium in the event the insured is part of a union and goes on strike. I’ve most commonly seen it on policies issued purchased through work.
- Term life insurance riders Term life insurance riders are available for the insured or for the insured’s family members. The benefit of a term rider is two fold. One, the cost of a term life insurance policy is less than a permanent policy. Second, by adding a term life insurance rider as opposed to a separate term life policy, you save the additional policy fee required for a separate term policy. This might save you about $100 per year. I’ve noticed five different types of term riders over the years.
— Level term insurance rider A level term rider adds a flat amount of term life insurance at a level premium for a certain number of years. An example would be a 20 year term rider.
— Annual renewable term insurance rider Instead of locking in a premium for period of time, you can instead add a term rider where the premium changes each year.
— Monthly benefit life rider Another term life insurance rider option would be one that would provide your beneficiary with a monthly benefit for a certain period of time instead of lump sum.
— Spouse term insurance rider In addition to adding a term rider for yourself, you can also add a term rider for your spouse. Unless there is some sort of underwriting concession the insurance company provides to help your spouse qualify, I think it’s better to have a separate policy for your spouse. This would keep your policy separate in the event of a divorce or death. Each person could then keep their policy instead of relying on one spouse being dependent on the other spouse to keep their policy inforce. The spouse covered under the rider wouldn’t own their policy and as a result, also wouldn’t be able to name a different beneficiary if they needed to.
— Children’s term insurance rider A child term rider covers any dependent children for a certain amount of term life insurance up to a certain age. The child rider is usually priced as a flat amount no matter how many children you have. It can also include an option to convert the rider into a permanent policy at a later date which is what makes many child term riders a great option of the child has a health condition.
- Guaranteed insurability rider A guaranteed insurability rider provides an insured with options to purchase additional life insurance at later points in life without the need to satisfy any medical requirements.
- Return of premium rider A return of premium rider would return the premium at a certain age if the insured has not died.
- No lapse guarantee rider A no lapse guarantee rider would insure that your universal life insurance policy would not lapse even if the cash value in the policy went to zero.
- Terminal illness or accelerated death benefit rider A terminal illness rider will pay you part of your life insurance while you are alive should be diagnosed with a terminal illness. I’ve seen the terminal illness rider used once during my career for a person who needed a costly liver transplant. The great news was that the trasnplant was successful and extended their life.
- Long term care or chronic illness rider Similar to the terminal illness rider, the chronic illness rider will pay you an amount of money in certain situations if you are diagnosed with a certain chronic illnesses or lose the ability to do a certain number of activities of daily living. Activities of daily living, or ADL’s as they are called, are things we take for granted every day like eating, going to the bathroom and getting around for example. Since most people don’t have long term care insurance, it might provided needed funds for expensive long term care.
- Disability income rider A disability income rider would provide the insured a set amount of monthly income in the event of a disability.
- Term conversion rider A term conversion rider would allow the policy to be converted from a term policy to a permanent policy without any medical questions. Usually though, term conversion options are not so much riders as they are contractual features. It’s important to know that they exist. Conversion options also may also exist with the term riders listed above.
- Automatic premium loan Automatic premium loan would protect the policy from lapsing if a premium was not received. That premium would be borrowed from the cash value if any is available. Technically, it’s probably not a rider but more of a nonforfeiture option. I still included it with the riders because I think it’s an important option to have.
- Paid up additions rider A paid up additions rider allows you to put more money into a whole life insurance policy than the base premium in order to maximize the cash value in the policy. This is in addition to the dividend option on a whole life policy. The paid up additions rider is common tool used in the Infinite Banking Concept or the Bank on Yourself strategies.
- Cost of living rider A cost of living rider provides an increase in death benefit to offset inflation. While I haven’t ever seen or written one of these riders, I’ve read that it is available from some insurance companies.
The above list of riders is a pretty complete list of the types of life insurance riders that most insurance companies may make available.
How to find out what riders are attached to your policy
In order to know what riders you have included on your life insurance policy, you’ll need to get out your policy and read it.
If you can’t find your policy (which is pretty common), or if you don’t want to read it, you can also call your agent or the insurance company and ask them to tell you what riders were added.
How are riders added to your policy?
You might be wondering how these riders get added to your policy, so let’s talk about how that process works.
When you buy your policy, the agent completes the application. At the time of application, any riders you want and can qualify for can be selected.
If your agent is good, they’ll add all the riders that don’t cost anything to add automatically. They’ll also make you aware of all of the additional riders you can select and how much they cost to add.
Sometimes agents don’t talk about adding certain riders that require an extra premium if they sense you are trying to keep your premium as low as possible.
If that’s the case, you might miss out on a rider you would have otherwise purchased.
Ask to see a list of all life insurance riders available for purchase when you buy a policy
When you buy a policy, the best thing you can do is to ask the agent to provide you a list of all the life insurance riders they offer with that particular policy.
Take some time to review each rider carefully before you apply and decide if it’s important to you.
If you are short on time, add any riders you are interested in at that time. You can always drop a rider after the policy is issued if you change your mind.
Adding or removing riders and riders that expire at a certain age
The best time to add a life insurance rider is at the time of application. Often, they can’t be added later and you’ll totally miss out.
However, you should be able to remove most riders any time after a policy has been issued. To remove the rider, you complete a contractual change form with the insurance company. Once it’s processed, your premium will decrease.
The most common rider you’ll want to remove is a child term rider. You’ll want to do that once all of your children are no longer covered under the rider. The insurance company doesn’t automatically remove that rider so if you don’t you’ll continue paying the premium.
While it’s probably not a lot of money, there’s no sense in paying for a rider you don’t need and freely giving that money to the insurance company.
Some riders expire at a certain age. When they expire, your premium will automatically reduce. No action is required on your part for that to happen. Accidental death and waiver of premium are a couple of riders that expire at certain ages.
Not all riders work the same at every life insurance company
Keep in mind that each and every life insurance company has their own set of rules regarding how their life insurance riders work.
They may provide different benefits, the premiums may be different or may have other unique features that make them better or worse than another life insurance company’s riders.
They may also have insurance rider that no one else has or that I didn’t even list.
Don’t forget about your life insurance riders
You’d be surprised that the vast majority of people forget about the life insurance riders they’ve added to their policies.
The problem with that is that some of those extra benefits may expire without you taking advantage of them. Once they expire, it’s too late to exercise them.
Others may sit there unused when they could have helped you.
That’s an important reason why it makes sense to review your policies every year.
If you have read this far, you now know a lot more than some agents do about the life insurance riders you can add to your life insurance policies.
Make sure that you are aware of the riders you can add when you buy a policy and that you don’t forget about them after you buy the policy.
There could be a day that you need the benefits that they provide.
Let me know if you have seen any additional life insurance riders I didn’t mention or if you have any questions in the comments below.