There are features available to a policy owner that aren’t required by regulation. These optional features are called riders. You can add riders to a policy (for an extra cost) to enhance the policy’s benefits. Because the cost is usually reasonable compared to the benefits provided, riders are popular. Most policies offer riders such as the following:

Waiver of premium

If an insured becomes disabled and can’t earn a living, the waiver of premium rider allows the policy to stay in force without requiring the policy owner to continue paying premiums. There’s usually a waiting period after the disability begins before the rider takes effect.

The payor benefit rider is generally used with juvenile policies. It provides that premium payments will be waived if the parent (the person paying for the policy) dies or becomes disabled before the insured reaches an age specified in the policy.

Guaranteed insurability (additional purchase benefit)

This option allows a policy owner to buy additional amounts of life insurance in the future, even if he/she has become uninsurable. It permits the purchase of additional coverage in specified amounts, at specified intervals, until the insured reaches a certain age. The amounts of additional insurance and the dates on which the option can be exercised vary by insurer.

Accidental death benefit

Sometimes called double indemnity, this option can be added to a life insurance policy for a small additional premium. The additional death benefit is usually equal to the face amount of the policy. For the benefit to be payable, the insured must die as the result of an accident. The accidental death benefit won’t be paid if death occurs while the insured was intoxicated or committing a felony.

Cost of living

The cost of living rider increases the face amount of your policy at the rate of inflation. This helps assure the policy owner that the death benefit will be adequate in future dollars.

Return of cash value

Many clients object to the fact that whole life companies keep the cash value upon death. As a result, insurers offer the return of cash value rider. This is actually a form of increasing term coverage that will pay an amount equal to the cash value of the policy in addition to the face amount of the policy at death.

Lesson summary

Policy riders offer additional features to a policy owner beyond what is required by regulation. These options, available at an extra cost, enhance the policy’s value and are popular because their pricing is generally reasonable compared to the benefits provided. Common policy riders include:

• Waiver of premium: Allows the policy to remain in force if the insured becomes disabled, without requiring premium payments.
• Guaranteed insurability: Permits the purchase of additional life insurance in the future, regardless of insurability.
• Accidental death benefit: Provides an additional death benefit if the insured dies due to an accident.
• Cost of living: Increases the policy’s face amount over time to keep pace with inflation.
• Return of cash value: Pays an amount equal to the policy’s cash value in addition to the face amount at death.

Chapter vocabulary

Definitions

Concealment

To omit material facts that would have affected the creation of the contract.

Cost of living adjustment (COLA) rider

A rider that may be attached to policies adjusting the benefits based upon a formula tied to inflationary trends.

Double indemnity

A clause for the payment of twice the regular benefit if an insured dies under certain specified circumstances (usually as the result of an accidental injury).

Guaranteed insurability rider (APB)

A rider that guarantees the insured can purchase more insurance at specified ages without proof of insurability.

Payor rider

A rider to a juvenile life policy providing that if the payor dies or becomes disabled before the insured juvenile reaches a certain age, the company waives the premiums and keeps the policy in full force.

Rider

A legal document amending a policy. Additional benefits or a reduction in benefits are often incorporated in policies by an endorsement (rider). A waiver for a health impairment may also be affected by a rider.

Waiver of premium

A provision included in some policies that exempts the insured from the payment of premiums after he has become totally disabled.