Policy Riders
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 rider lists its own exclusions. They commonly include a death caused or contributed to by the insured’s committing or attempting to commit a felony, and a rider may also exclude a death caused or contributed to by the insured’s intoxication.
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.
Riders covering additional insureds
Most riders change what the policy pays on the insured. A second group of riders adds coverage on other people, usually family members, to the same policy. Adding them to one policy is generally less expensive and simpler than buying separate policies, and the additional coverage is usually term insurance.
Spouse rider
A spouse rider (also called an other insured rider) provides term coverage on the insured’s spouse. The face amount is typically a set amount or a fraction of the base policy, and the rider usually lets the spouse convert the coverage to a permanent policy of their own without evidence of insurability, within the limits the rider states.
Children’s term rider
A children’s rider provides term coverage on the insured’s children for a single premium that does not change with the number of children covered. Children born or adopted after the rider is added are covered automatically, once they reach a short minimum age stated in the rider. Coverage on each child ends at an age stated in the rider, and the child can then convert it to a permanent policy without proving insurability. That conversion right is the rider’s most valuable feature, because it guarantees the child can buy coverage as an adult regardless of health.
Family term rider
A family term rider combines spouse and children’s coverage in a single rider attached to the breadwinner’s policy. It works like the two riders above together: term coverage on the spouse and on each child, with conversion privileges. A whole life policy issued with a family term rider is the family policy described in the whole life chapter.
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.
- Riders covering additional insureds: Add term coverage on other people to the same policy: a spouse (other insured) rider, a children’s term rider that covers all children for one premium, or a family term rider that covers both. Each usually carries a conversion privilege.