Life insurance is like most other products and services that are available. You can get the basic product, but you can also add different options to your policy. In the insurance industry, those options are commonly referred to as riders.
You should be aware that any rider will come with an extra charge in your premiums. So make sure that the rider does not turn what you thought was an affordable life insurance policy into something you really cannot afford. There are riders that cover all kinds of contingencies. But here are five of the more common riders that you need to be aware of.
1. Guaranteed Insurability Rider
This rider is valuable because it can work to your advantage on either a permanent policy, or a term life policy. It’s a provision that guarantees that you will be able to purchase insurance in the future from the same carrier, regardless of the state of your health.
If you take a permanent policy, a guaranteed insurability clause will enable you to buy additional coverage in the future without needing to qualify based on the state of your health. This can help you if you either want to increase the amount of your whole life policy, or if you want to add term riders for additional coverage.
Guaranteed insurability is probably even more valuable if you have a term policy. The major downside risk with any term life policy is that it will eventually come to an end. Once it does, you’ll need to replace it with a new policy, and you will have to qualify for that based on your age and the state of your health at the time of the re-application. A guaranteed insurability clause will ensure that you will be able to get a replacement policy, even if you are in poor health.
2. Accidental Death Rider
This rider doubles the face value death benefit of your policy in the event that your death is the result of an accident. This is why these riders are usually referred to as “double indemnity” provisions.
This can be an especially important rider if you work in occupation were the potential of losing your life in an accident is higher than normal. But it’s always good to have because death caused by accidents often brings a special set of financial considerations, that may not be present when death is caused by a progressive illness. For example, since accidental death is sudden, there’s no time to make any advanced preparations.
Should you decide to add an accidental death rider to your policy, be sure that you carefully review the list of covered accidents that the rider will apply to. It should be the longest list possible. So for example, if you are a truck driver, and the rider specifically excludes death caused by auto accidents, the rider probably will not help you.
3. Premium Waiver Rider
This rider will enable you to waive your premiums in the event that you become disabled and are unable to work. The waiver is generally good for up to six months, which will be a major benefit in most cases involving short-term disability.
Obviously, this will be only a limited benefit if your disability turns out to be permanent. However, the rider will provide you with six months to prepare your financial situation for your permanent disability. And that may be just enough time for you to be able to do what you need to do.
4. Convertibility Rider
This rider is specific to term life policies. It allows the term policy to be converted over to a whole life insurance (permanent) policy, forgoing a new medical examination.
The basic advantage here is obvious. All term policies will eventually expire, with 30 years typically being the maximum term. If you have the convertibility rider, you can simply convert the term policy over to a permanent policy near the end of the original term or before a certain age. It is very important that you look at your actual policy to know when this rider expires.
The one disadvantage of this rider is that it will increase the cost of your term policy. Since most people take a term policy primarily for the purpose of saving money on their premium costs, the rider can make term somewhat less attractive from that perspective. It might even raise the cost of the term policy to the point where it may be worth considering simply going with a permanent policy from the very start.
5. Return of Premium Rider
This is another rider specifically for term policies. It mostly addresses the issue that term policies do not provide any cash value, as you would get with a whole life policy, or other investment-based insurance products.
A return of premium rider is a provision in which the carrier will give you back the money you have paid on your term policy while it was in force. This may not be quite as effective as the cash value accumulation in a whole policy, but you can come close.
The insurance carrier is willing to grant this provision because they will be earning investment income on the premiums that you’re paying for your term policy. At the end of the term, they can refund all of your premiums paid, but retain the investment income in exchange for having provided the term coverage.
Once again, cost is a potential downside with this rider. Adding it to the term policy can increase your annual premiums by as much as 35%. However, if you pay say, $1,000 per year in premiums for your term policy, over a 20 year period you will have $20,000 refunded to you at the end of the term.
That won’t be as good as investing $1,000 in a mutual fund for 20 years, but you’ll have your premiums back, plus the benefit of having had term coverage for the whole time.
These are just some examples of the many riders that are available when you purchase a policy. Be sure to ask your insurance broker about any riders the company offers, and carefully consider if one or more will be a benefit for you. We recommend you look over our top company reviews, such as Banner Life Insurance, to learn more about each company before you make your final life insurance purchase decision.
With many rider options available for your policy, it’s mandatory to understand each one so you can choose the best coverage for your family. If you decide that you want to add some of these riders to your insurance coverage, you might be worried about how much your life insurance plan is going to cost. Don’t worry, regardless of how many riders that you’re going to purchase or the type of plan, it’s possible to get affordable insurance protection.
Our next suggestion is about ways to keep the monthly cost of your plan low. Regardless of the riders you add, we think you can make some changes to your life, cutting premiums by hundreds of dollars.
Some of you out there that partake in tobacco use are starting at high premium rates. Companies are known to upcharge at least double the standard rate if you have used any type of tobacco in the last year. You’ve always been looking for an excuse to kick the habit, so let this be your reason.
You can also save big on your life insurance by either staying healthy, or starting to get healthy. Overall there’s no other way to keep your life insurance premiums consistently low if you don’t have a healthy life. Your medical exam will include a blood test and other various tests that will determine your health rating to the insurer. Getting that preferred rating or in some cases a preferred plus rating can really reduce your monthly cost and might even let you purchase more insurance for the price you were originally quoted!
Our final tip on saving money with your life insurance premium is getting lots of quotes. And we mean lots of quotes. You don’t want to apply for a plan have it effective and then find out months later you could’ve saved 15 dollars on your monthly premium. There are two ways you can do this, and the first is by using your time outside of work to chase every quote and plan down until it’s been 4 weeks and you still can’t decide on the type of coverage you want. The second way, and the easiest way, is to call us! We have access to many carriers and can build a quote that lists out several insurers and let you know which one is best.
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