Life insurance is a complicated product to buy. It requires you to make judgments and quasi-predictions about when and how you might die — and ultimately hope you end up paying for something you never actually use.
It’s a frustrating financial decision to make, but understanding your options helps.
Basic life insurance often offers incomplete coverage. Adding life insurance riders to your policy can expand your coverage and give you and your loved ones more peace of mind.
What Is a Life Insurance Rider?
Life insurance riders are benefits you can add to your life insurance coverage that aren’t typically included in a basic policy.
A basic life insurance policy through a company like Ladder typically covers a single person in case of death by natural causes or illness. It pays out a stated amount to a beneficiary if the insured dies within a stated number of years (in the case of term life insurance) or anytime before age 100 (in the case of whole life insurance).
A rider generally adds a cost to your premium but expands the limits of your coverage, such as by adding beneficiaries, allowing more events to lead to a payout, or changing the term length. It ups the chance an insurance company will have to pay out on the policy.
How to Add or Drop a Rider
The best time to add a rider to your life insurance policy is when you first sign up for the policy. At that time, the underwriting process — through which the insurance company evaluates your circumstances and its risk to determine whether to cover you and how much to charge — covers your basic policy and any riders.
You can add riders to your policy later, but you may have to go through the underwriting process again, including undergoing a medical exam if it’s required.
You can remove riders from your policy down the line if you don’t need the coverage anymore or want to save money on the premium. Most insurance companies let you drop a rider just by filling out a form. Check your insurer’s website or contact customer service to find out how to modify your policy.
How Much Do Riders Cost?
Similar to a basic life insurance policy, the cost of a rider varies depending on your insurance company, the amount of coverage, and circumstances such as your age and health.
The additional premium for a rider is usually calculated as a percentage of the base premium.
Types of Riders
A cornucopia of life insurance riders exists. What’s available to you depends on which company you purchase life insurance from, so ask your insurance agent about riders you’re interested in before purchasing a policy.
Common life insurance riders include:
- Long-Term Care (LTC). Beneficiaries receive a portion of the death benefit while the insured is still alive to cover long-term care costs.
- Accelerated Death Benefit (ADB) or Living Benefit. Beneficiaries receive a portion of the death benefit before the insured dies, due to a qualifying trigger, such as a chronic or terminal illness.
- Accidental Death and Dismemberment (AD&D). Coverage extends to pay out the death benefit in case of death by accident or the loss of a body part or function.
- Waiver of Premium and Payor Riders. Stop paying the premium if the policyholder becomes critically ill, injured, or disabled.
- Spousal or Child Rider. Add coverage for your spouse and child under one life insurance policy.
- Term Conversion. Turn a term life policy into a whole life policy at any time (with increased premiums).
- Return of Premium. Receive the cost of your premiums back (but not the cost of the rider) if you outlive the term of a life insurance policy.
- Guaranteed Insurability (GI). Get the option to increase the death benefit amount every few years or in case of major life events like marriage or the birth or adoption of a child without undergoing another medical exam or questionnaire.
Are Life Insurance Riders Worth It?
An insurance agent can help you weigh the costs and benefits of each rider you’re considering for your insurance policy. But remember: Their job is to sell you insurance, not necessarily to help you find the more beneficial or affordable policy, so do your research before you buy.
Some riders give you an opportunity to save money, but others are unnecessarily costly compared with their relative benefit for most people.
Spousal and child riders, for example, have decreased in popularity despite their apparent convenience. The additional premiums often cost more than what you’d pay just buying separate policies.
On the other hand, a term conversion rider could save you money if you decide you need permanent life insurance coverage before the current term is up.
Life insurance premiums tend to go up as you age, so converting a term life policy to a whole life policy could help you lock in a cheaper rate than if you waited for the term to expire.
As with any type of insurance, you can’t perfectly predict what kind of life insurance coverage you’ll need or when you’ll need it.
An insurance agent and some research can help you determine typical life insurance coverage for your circumstances. Life insurance riders expand your coverage and prepare you for additional unexpected events.
Riders add to the cost of your premium but give you added peace of mind that loved ones are protected from financial distress if you die. Some riders even let you receive some of the benefit while you’re still alive in case you become ill or disabled or require costly long-term care.
Which riders are worth the added cost for you and your family depends on your circumstances.
Before you buy, consider how much you’ll pay in premium payments throughout the coverage term, how thoroughly your potential life events are covered, and how much beneficiaries stand to receive upon payout. Weighing the costs against the benefits will help you decide what kind of life insurance policy is best for your situation.
Have you purchased a life insurance rider? What are your recommendations?