Life insurance is a flexible product that allows a policy holder to tailor the policy to their specific situation. One of the ways they do this is through the use of policy riders. Riders are additional benefits or conditions that are added to an insurance policy.
What You Need to Know
Riders can help individuals in unique situations tailor their life insurance products to better suit their needs. With a few exceptions, life insurance riders are pretty standard with all companies. Below are a few of the most common and how they can be applied:
- Accidental Death and Dismemberment
AD&D riders provide an extra amount of coverage in the event of dismemberment or death resulting from an accident.
- Term Insurance Rider
Term riders are added to permanent insurance options to give the insured an extra amount of coverage for a specified period of time. For example, someone might buy a $50,000 whole life policy and add on a $500,000 20-year term rider. This combines both temporary and permanent insurance. This allows people to cover high risk years such as when children are young, you have a mortgage, or your high earning years while still keeping costs reasonable and protecting your future insurance needs.
- Disability Waiver
A Disability Waiver gives the policy owner the benefit of not having to pay their premium in the event the individual becomes disabled. This provides welcome relief if the policy owner is unable to work and are financially strained. It allows the coverage to stay in force without a premium being paid.
- Guaranteed Insurability Option
This rider allows the policy owner to purchase more insurance on the insured at a later date without providing evidence of insurability. For example, the policy may have a face value of $100,000 with a $25,000 guaranteed insurability option. This means the policy owner could purchase up to $25,000 more insurance when the option becomes available without providing any medical information.
- Child Rider
This rider allows for the policy holder to add their children to their policy. For example, a parent may have $250,000 of term insurance for themselves and choose to add a $10,000 child rider for each of their 3 children. The children now each have $10,000 worth of life insurance which can be converted out of the policy to be a standalone policy at a certain date that is specified in the contract. This is a great option to provide future insurability for your children.
The Bottom Line
These are some of the most commonly seen life insurance riders, but each insurance company has its own unique offerings that could benefit policy holders. Riders are often very cost effective and can offer families an additional layer of protection that a basic policy may not. An advisor can help you understand the contractual obligations of each riders and how they can best benefit you!
Insurance products and services are provided through Davison & Orser Financial Advisors. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.
