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Finance for Parents

Riders 101: What Are Life Insurance Riders?

By Wendy BerkowitzFeb 25, 2020

Especially when you're surrounded by action figures and kids' hobbies, "riders" might make you think of superheroes or maybe equestrians. And maybe in some cases that's right!

In the insurance world, though, riders are additional coverages that can either be included in a policy or that you can purchase for an additional fee. For example, you might choose to add a rider to your homeowners insurance to cover a high-value item like an engagement ring, or a potential issue like water backup. 

When it comes to life insurance, most riders either add coverage for a specific set of circumstances, or offer the insured party more financial options. (What is life insurance, exactly?)

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Do I Need a Life Insurance Rider? 

Increased coverage and enhanced flexibility sound great, but they do come with an additional cost. So while it may be tempting to purchase multiple riders and cover all of your bases, you’ll want to weigh the specifics of your family’s situation against the cost of adding a particular rider. Are you the sole income earner? Do you anticipate your expenses increasing in the future? 

(Here's more on how you might use a life insurance payout.)

For some people, riders can be critical to safeguarding their family’s financial future. For others, riders are an unnecessary additional expense. 

It’s also important to note that, like the insurance policy itself, riders are meant to be purchased before the conditions of a rider are met. Typically, you can add a rider to your policy to protect against a potential circumstance, but generally can’t add one after the fact. 

Common Life Insurance Riders

Every policy is different, and every insurer will offer different riders. Options can vary by insurer, product and even the state you live in. Some may only apply to term life insurance policies, while others can be used in conjunction with whole life insurance policies. The following are some of the most common riders.

Return of Premium Rider 

With a whole life insurance policy, your beneficiaries will be covered upon your death as long as you’re up to date on your premiums. With a term life insurance policy, you’re covered for a specific time period. Say, 20 years.

If you die after those 20 years, your beneficiaries wouldn’t receive a death benefit. (Despite these limitations, many people choose term life insurance because it’s much less expensive. Here’s more on term vs. whole life insurance.)

This rider might be for you if you’re concerned about your ability to save for retirement or if you simply hate the idea of paying premiums for many years and not getting them back if you outlive your policy. Without this rider, if you outlive your term life insurance policy, that’s it. You’re done. If you have a return of premium rider, you’ll get back the money you spent on your premiums over the years (tax free, since it’s considered a refund).

A return of premium rider sounds great, but it’s not without its downsides. In general, your life insurance premiums will be about 30% more expensive if you purchase the rider, which means that every month you’ll be sending extra money to your insurer, rather than investing it.

When you do get the money back, you’ll get exactly what you paid (not including the rider costs), which means you’ll have missed out on the opportunity to see that money grow elsewhere. 

Conversion Option

This rider allows you to convert your term life insurance policy into a whole life insurance policy. The option is built into many term life policies, but it’s an add-on in some cases.

If your policy includes a conversion rider—or if you choose to purchase one—you’ll have a window of time in which to convert your policy from term to whole life insurance, usually without undergoing a new underwriting process. By avoiding underwriting, you’ll avoid a new physical exam, which could uncover new health conditions that you’ve developed since you first purchased your policy. 

The timing and duration of the conversion window will vary according to the specifics of your policy. 

In many cases, as people age, their financial obligations lessen—they pay down their debts or have fewer dependents—which is why term life insurance is often sufficient protection. If it’s likely you’ll still be financially responsible for your dependents after your term ends, or if you want the option to access the cash value components of a whole life policy down the road, you may want to consider a conversion rider. 

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Accelerated Death Benefit 

This rider will allow you to access some of your policy’s death benefit while you’re still alive, in the event of terminal illness. The amount of the benefit amount may be capped, and any funds you spend while you’re still alive will decrease the amount ultimately paid out to your beneficiary.

That said, the accelerated death benefit can help ease the financial burden associated with end-of-life care, so it might still help your beneficiary’s financial future (because, for example, you wouldn’t need to spend down your entire estate to pay for long-term care), even if they’re not the direct recipient of the funds. 

In some cases, the accelerated death benefit is built into the price of a standard life insurance policy, though in other cases you may need to add it on as a rider.

Critical Illness

In the event that the insured party is diagnosed with one of the specific illnesses named in the rider, the policy will pay out a portion of the benefit. As with the accelerated death benefit, any funds used under this rider will be deducted from the amount that is ultimately paid out to the beneficiary.

Unlike the accelerated death benefit, the illnesses covered by this rider are not necessarily terminal, but they are generally illnesses that shorten life expectancy, like cancer, stroke and kidney failure.

Waiver of Premium for Disability 

If you become unable to work due to disability, this rider would exempt you from needing to pay your life insurance premiums. This can help free up money for other expenses if the unexpected loss of income leaves you short on cash. 

It’s worth noting that it’s generally difficult to qualify for a waiver of premiums. In most cases, you’ll need to have a disability that prevents you from working any job, as opposed to one that’s keeping you out of your current occupation. (i.e. Maybe you can no longer work as a doctor like you were trained to do, but could you get a job bagging groceries?) Also, many insurers prohibit the use of this waiver after a certain age, usually 65 years. 

The cost of a waiver of premium rider will be determined by many of the same factors used to price your base policy, including your age and overall health. In some cases, this waiver may be more helpful for people with expensive premiums, such as those with whole life insurance.

Many people with inexpensive term life insurance policies, on the other hand, might decide that they could still afford their relatively inexpensive premiums even if they were disabled, and that it isn’t worth the extra money for the rider.

Accidental Death Benefit 

This rider offers an extra payout—often in the same amount as the base policy—in the event of an accidental death. That means if you die in an accident, your beneficiary would get twice as much money as they otherwise would have.

Bear in mind, insurers are very specific about what qualifies as an accident. This rider sometimes includes dismemberment, which means a payout can be triggered in the event an insured party loses a limb in an accident but does not die.

In general, this rider will add a few extra dollars to your premium every month. For most people, it’s not worth the additional cost, but you may want to consider it if your hobbies or occupation are particularly risky. 

Spousal Rider

This rider will pay out in the event of a spouse’s death. Though it's similar to purchasing life insurance for your spouse, it’s not the same as each of you having your own policy. It’s usually less expensive to purchase a spousal rider than an additional policy, but riders also generally offer lower coverage.

In many cases, spouses choose to figure out their life insurance needs together. Here's what you should know about shopping for life insurance as a couple.

Child Rider 

With this rider, you'll receive a sum of money in the event of your child’s death. This rider usually adds a few extra dollars to your monthly premium, and the payout can be used to help cover associated expenses, like funeral costs or medical bills.

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Guaranteed Insurability 

This rider allows you to increase your coverage at predetermined intervals—usually at certain ages, or after certain life events, like a marriage or the birth of a child—without purchasing a new policy or taking a new medical exam. These coverage increases can help your policy keep up if your financial obligations grow over time. You will have to pay for each coverage increase, but your new rate won’t be impacted by any changes in your health.

So, let’s say you bought a life insurance policy with $500,000 in coverage when you had your first child, but now you’ve had a second child. As a result, you’d like to double your coverage to $1 million. In many cases, you’d have to go through the underwriting process again, to determine your insurability.

But if you have this rider, you wouldn’t have to be re-underwritten. That process might determine that you now present a higher risk because you’re older, say, or because you’ve developed diabetes in the last few years. So you would have to pay for the increased coverage but you wouldn’t have to pay even more as a result of new medical issues.

There is a wide range of life insurance riders out there, designed to offer additional protection in a variety of circumstances. Though you may want to add all the safeguards you can afford, each rider comes with its own tradeoffs. The specifics (payout caps, covered illnesses and more) will vary depending on the insurance company, so be sure to do your research and consider the details of each rider as you decide which, if any, are right for you and your family.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

Does your family rely on your income? Fabric makes it easy to apply for a term life insurance policy in minutes.

This material is designed to provide general information on the subjects covered. It is not, however, intended to provide specific financial advice or to serve as the basis for any decisions. Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want a easy and fast way to purchase life insurance.

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Written by

Wendy Berkowitz

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