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Life Insurance Riders – A Comprehensive Guide

Most life insurance policies have riders or additional available amendments to the standard policy contract.  A rider is an amendment or endorsement to an insurance policy, which normally involves an extra premium for the policyowner’s extra benefits or options.  Some riders are added to eligible policies at no additional cost.  These include Living Benefits and Automatic Premium Loan options.  Note that riders can vary by state, and not all riders are available in every state.

 

  • NO ADDITIONAL COST RIDERS:
  1. The Living Benefits Rider is also called the Living Needs, Terminal Illness, or Accelerated Death Benefit Rider.  This rider allows the policy-owner the option to receive a portion of the policy’s eligible life insurance benefit during the insured’s lifetime if the insured has been diagnosed with a terminal illness and a life expectancy of 12 months or less.  The portion of proceeds available for access is normally from 25 % to 100 %.
  2. Automatic Premium Loan (APL) is an optional provision of a permanent life insurance policy that is intended to keep the policy from lapsing due to non-payment. The policyowner may change the premium mode and forget the payment, or may not be able to afford the premium; and if the policy has enough available cash value an APL will be performed.
  3. Survivor Purchase Option (SPO) is a rider that varies with insurers and plans.  Sometimes it is offered as a Spouse’s Insurance Purchase Option.  When offered, upon the death of the insured, this rider allows the surviving beneficiary of the policy the option to purchase insurance up to the death benefit amount (normally a paid-up policy) without evidence of insurability.  For an additional cost, some policies offer SPOs up to five times the face amount of the original policy.
  • COMMON LIFE INSURANCE RIDERS:
  1. Children’s Insurance Riders are typical for most term and permanent life insurance policies.   Children’s insurance can often be purchased in units of $ 1,000.
  2. Other Insured Riders (OI) or Other Covered Insured Riders are typical to term and permanent life insurance policies.  With these riders, whether a spouse or child, the other covered insured can apply for a varied amount of life insurance (for example from $ 10,000 to $ 500,000) which is individually underwritten and added to the primary insured’s policy.  Normally, the OI Rider cannot exceed the amount of coverage on the primarily insured.
  3. Disability Waiver of Premium (WP) allows the premiums on the policy to be waived if the covered insured becomes totally disabled.  The insured must be under a specific age and qualify according to the definition and terms of the agreement.  Most plans require at least six months of total disability before premiums can be waived.  Normally, in permanent plans, the cash values will be credited as usual while on WP.
  4. Accidental Death Benefit provides an additional death benefit above the face amount to be paid if the insured’s death was the result of an accident.
  5. Additional Insurance Option or Option to Purchase Additional Insurance gives the policyowner the right to purchase additional insurance on the insured at certain ages or upon specific life events, without having to provide evidence of insurability.
  • TERM LIFE INSURANCE RIDERS:

Insurers offer a variety of riders that vary according to their individual plans.  They will typically include some or all of the common life insurance riders displayed above.  They normally will include the no cost Living Benefits or Terminal Illness Accelerated Death Benefit rider.  Some insurers offer a return of premium rider (ROP) on certain plans.

  • WHOLE LIFE INSURANCE RIDERS:

Insurers offer a variety of riders that vary according to their individual plans.  They will typically include some or all of the common life insurance riders displayed above.  Also, they normally will include the no cost Living Benefits or Terminal Illness Accelerated Death Benefit rider, automatic premium loan rider, and Survivor Purchase Option rider.   Other riders found on whole life policies include:

  1. Paid Up Additions Rider or Option to Purchase Paid-Up Additions (OPP) allows that policyowner to make additional payments into the plan which grow with interest tax-deferred and increase the cash value and death benefit of the plan.  Additionally, these additions can be used to reduce or pay future premiums.
  2. Dividend Option Term rider allows dividends to be used to purchase additional term insurance, usually a level term.

Insurers offer a variety of riders that vary according to their individual plans.  They will typically include some or all of the common life insurance riders displayed above.  Also, they normally will include the no cost Living Benefits or Terminal Illness Accelerated Death Benefit rider, automatic premium loan rider, and Survivor Purchase Option rider.   Other riders found on universal life policies include:

  1. Guaranteed No-Lapse riders are offered on many UL plans.  These Lapse Protection Riders ensure that the policy will not lapse for a specific period of time even if the policy’s account value falls to zero.  As long as the premiums are paid according to the payment schedule, the policy will not lapse.
  2. Guaranteed Death Benefit rider ensures a minimum guaranteed death benefit on a UL plan regardless of the account value.
Before buying a life insurance policy, the buyer should gain a general understanding of the plan which they are purchasing.  Additionally, the buyer should be comfortable with the carrier or life insurance company issuing their policy.  The buyer might ask, ‘Does this carrier sell more than one type of life insurance product?’ And ‘do they offer the riders I need?’
  • Ron Smith, CLU Licensed Life Insurance Agent, for LifeInsuranceQuote.net. Ron has been a CLU Licensed Life Insurance Agent in Louisiana for more than 22 years. He has a B.S. in Economics from LSU-S. He has been married for 21 years and has 4 amazing children.