Life Insurance

What you need to learn about life insurance coverage riders

Does fine print make your eyes cross? Us too.

And while researching life insurance coverage riders may never be anyone's beach read of choice, becoming familiar with all of the different riders that may be available, and whether you'll need them, can help you save some money on premiums as well as help make sure that your family is protected if anything occurs.

While getting a life insurance coverage that matches your financial life as well as your family's needs is simpler than ever because of today's technology, there are several choices you will need to make along the way. These optional add-ons — called riders — may, yes, need you to wade into the fine print.

Riders can provide you with exactly what you'll need when it comes to your policy, however they may also introduce a level of complexity and can increase the amount of your premium. It is important you completely understand your choices and choose what's best for you to get the protection which makes probably the most sense for you, at the lowest cost.

Definition of a life insurance rider

In short, life insurance coverage riders are extra benefits where you can personalize your life insurance policy. Some are built into the policy, yet others may involve a fee. Obviously, a rider is a legal term, designed to denote an amendment, change or addition to a legal contract. While the term itself sounds complicated, riders are common in the life insurance coverage industry and therefore are often offered in a variety of forms as additions to your policy. The advantages of a rider often provide flexibility for the person insured by the policy.

Some people may not need riders at all. In other cases, life insurance riders can provide you extra protection against some “what ifs” which come up in life. It's a personal decision.

Six common life insurance riders

While riders can help personalize your lifetime insurance policy for your individual needs, it often increases your premium amount and may make understanding your life insurance plan benefits a bit more complicated. Not everybody needs all the riders at hand, therefore it is important to determine whether the potential for added costs is worth it for you.

Across permanent and term life insurance policies, there are numerous riders available, plus they change from company to company. To narrow the focus a little, we're focusing exclusively on term life insurance policy riders becasue it is a popular type of coverage for many people, and it's what we should sell at Haven Life.

1. Accelerated death benefit

An accelerated death benefit provision is really a standard life insurance rider and it is often incorporated with a basic policy. For example, this rider is an inherent benefit of the Haven Term life policy, therefore the cost is included directly included in the premium pricing.

An accelerated death benefit rider results in a provision in a life insurance coverage that allows the policyholder to get a portion of the life insurance coverage death benefit if they were to become crictally ill — usually with a life span of two years or less. For example, Haven Term policyholders can access 75% of their benefit, or a maximum of $250,000, whichever comes first.

This rider isn’t necessarily about creating the insurance policy a payout to you, rather it allows you to definitely access some of the death benefit proceeds to get your affairs in order.

It's vital that you realize that there are several disadvantages in this rider — specifically when it comes to exercising the advantage. Most life insurers charge an administrative fee for accessing the proceeds in advance. Also, due to borrowing from the death benefit, the proceeds your beneficiaries receive whenever you pass away will disappear to account for the loan.

Additionally, a 1099 LTC could be generated because of payment caused by the accelerated death benefit. Often, these payments are income tax-free. However, i suggest you consult with a tax advisor because there could be tax consequences.

While none of us wish to think about dying, if you were to become terminally ill, this rider can be quite useful for helping you to get the affairs in order before passing. For example, paying toward hospital bills or other expenses.

So may be the accelerated death benefit rider worthwhile? Given that a lot of companies offer this rider being an inherent feature of their policies, it is good to understand how it works and when this can be a help you wish to make sure you have.

2. Disability waiver of premium

If you were unable to work as a result of disability, how does one pay your premium? Purchasing life insurance coverage is about considering what-ifs, and this real question is an important someone to ask yourself and your family.

The Social Security Administration discovered that one out of every five Americans lives having a disability, therefore the possibility of being unable to work on some time because of disability is more common than you may think.

If this circumstance concerns you, a waiver of premium rider may be worth considering. This rider covers your policy premiums if you become too sick or injured to operate. Ultimately, it will help stop your life insurance policy from lapsing. With respect to the rider, it could cover you for 12 months that you can't pay, or up to a certain age. The person terms of the rider vary from carrier to carrier.

Haven Life also provides this type of life insurance rider, although it does add an additional cost for your life insurance premium, there are limitations based on which state you reside in.

There aren't any fees associated with utilizing this benefit (that is what the additional premium cost covers.) But, there's a six-month waiting period before you file claims to use this rider.

3. Convertibility

Also known as a term conversion, this rider allows you to convert the term insurance policy you buy today right into a permanent policy later down the road – without requiring you to take or retake a health check to do so. Keep in mind, your premium amount increases to account for going from the term policy to a permanent one (with lifelong coverage.)

We at Haven Life don't offer this rider because we have found that many in our clients are seeking term life. However, our parent company MassMutual has this rider with some of their policies.

There is usually a deadline on when you can convert either some or all of the term policy. For instance, the timeline on the 20-year term limit may be 10 years of ownership to transform the entire amount. This deadline varies by insurer and policy, so you will want to be sure you understand the fine print.

To determine whether this rider is really a fit for you personally, it's important to consider if you think you'll want permanent life insurance at some point. Or, should you a minimum of want the flexibility to transform sooner or later if you change your mind. If so, this is an excellent deal. You're potentially able to secure your insurability while you are still young and healthy because you're using the same underwriting leads to inform the pricing of the permanent policy. Having said that, permanent policies aren't for everyone.

Permanent life insurance coverage might be the right choice if, beyond the primary need for insurance protection, you:

  • Seek coverage that lasts an eternity and does not expire before you decide to pass away
  • Are seeking a product that offers a cash value component
  • Can pay the 3-figure premium payments on a monthly basis
  • Want life insurance coverage to be part of your long-term financial strategies
  • Are thinking about the tax advantages that are particular to whole life insurance

4. Return-of-premium

One of the biggest gripes individuals have about all types of insurance is that you are paying premiums for any “what if” scenario. And, in almost all cases, you hope the worst case scenario won't happen. But, where do those premiums go? The answer is: to the insurance company — unless it's a return of premium product.

A return of premium rider, also called RoP, offers a refund should you outlive the term of the policy. Generally, if you obtained a 30-year term life policy, for example, and lived beyond the lifetime of the insurance policy, most or all the premiums you paid get reimbursed for you. Yes, that's a lot of money returning the right path – but RoP riders often enhance the cost of your premiums significantly with this benefit.

Let's do a cost comparison.

A 20-year, $500,000 Haven Term policy, issued by MassMutual, for a healthy 30-year-old woman, would start at about $18 per month. (That's a medically underwritten, level-term policy.) Coming back of premium insurance policy for the same woman at the same about over coverage would start at about $77 monthly based on a State Farm tool.

Again, keep in mind, you need to do get that money back. Some think of it as forced savings, some view it as letting an insurer earn money in your money instead of you. We do not offer this rider for that Haven Term policy.

5. Disability income

This rider acts like long-term disability insurance, but rather than purchasing a separate policy, it's a rider on your insurance coverage. Should you become disabled and not able to work, the life insurance company would pay out a regular monthly stipend to exchange some of the income.

Most disability income riders can offer an advantage for approximately 2 yrs if you're unable to work because of an injury or illness. Additionally, premiums for the insurance coverage are waived while the policyholder is receiving disability benefits.

As we mentioned above, many Americans are disabled at one point in life, which is why disability insurance coverage is often recommended by financial planners. This rider typically provides limited benefits compared to the typical disability income policy but is worth looking at when a disability policy is unavailable or cost prohibitive.

6. Long-term care

A long-term care rider allows you to take money from your death benefit to pay for- you got it right, long-term care expenses, such as the cost of an elderly care facility, assisted living facility or in-home nurse. By 2050, the number of individuals using paid long-term care services will probably double in the 13 million using services in 2000 to 27 million people. Typically, usage of a long-term care rider is triggered with a chronic illness.

CERTIFIED FINANCIAL PLANNER professional Shannah Game of the Your Millennial Money Podcast is definitely an advocate for planning for long-term care needs but normally doesn't recommend it to clients until they are a minimum of Age forty and only if they're already on the right track for other financial targets like retirement.

If you’re worried about the financial impact of long-term take care of yourself, then it might be worth considering this rider.

What riders do many people buy?

Just because all these different riders exist doesn't mean you'll need them all. One may pose a more significant benefit to you compared to rest. Or, the small print and potential cost may outweigh the positives. Focus on considering what you want your coverage to maintain you and your family and determine if additional riders may better personalize the policy for your needs.

And remember, it's common to decide you don't need any life insurance riders. A fundamental life insurance coverage could be a perfectly suitable and affordable option for your reassurance.