Life Insurance Riders Customize Policies - What Are Riders?

The majority of Americans have life insurance. However, what each person is getting from their policies varies dramatically. You may have heard of life insurance riders, and wondered, what are riders? Basically, life insurance riders are used to customize a life insurance policy. Thus giving the policyholder more individualized coverage for their unique needs. 

So, riders are policy add-ons. Imagine a life insurance policy with some loopholes and extra rules riding on its back. Some riders increase the cost of your premiums whereas others get added with no extra cost. Depending on your circumstances, you may want a specific rider to make you feel more comfortable with your coverage. 

Let’s run through some of the most popular life insurance riders. As well as how these will affect your policy’s worth in a life settlement.   

Long Term Care Rider

Many people purchase a long-term care insurance policy. To clarify, this is a policy that will pay for long-term care such as a nursing home. Basically, with a long-term care rider added to your life insurance policy, you can have this coverage included. This way you can have one premium and policy that includes both types of insurance. 

Types of Long Term Care Riders:

  • Reimbursement riders will pay you the amount that you spend on long-term care. As long as it stays within your policy’s predetermined monthly limit. 
  • Indemnity riders give you a monthly payment predetermined within your policy. In particular, this number is not affected by how much you actually spend on long-term care. 

A long term care rider gives the policyholder additional peace of mind. For one thing, nobody knows what the future holds. Adding this rider to a policy gives additional financial security if the policyholder ends up needing long-term care.  

Critical Illness Life Insurance Rider

A critical illness rider will give the policyholder a partial benefit if they’re diagnosed with a disease or illness stated in the policy. Additionally, you can use this money for anything. Surprisingly it doesn’t need to pay for medical expenses. 

Accelerated Death Benefit

This is a very popular life insurance rider that most policies include at no extra cost. An accelerated death benefit allows the policyholder to gain access to a percentage of the death benefit while they are still living. This is for people who are diagnosed with a terminal illness and need extensive medical care at the end of their life. However, you don’t need to use the funds for medical expenses. 

Additionally, you can only use this rider in specific situations depending on the details of your policy. Nevertheless, events that might qualify you to use this rider are: 

  • terminal illness
  • an organ transplant
  • needing life support or long-term care
  • a permanent nursing home placement 

Using this money will certainly lower the amount that is paid after the policyholder dies. As it is similar to a loan against the future death benefit payout. Still, it may be needed more for the policyholder’s care. 

Waiver Of Premium

life insurance riders

This rider allows the policyholder to stop premium payments if they become disabled before reaching a certain age. Still, each policy will have specific parameters for this rider. The insured will especially have to provide proof of the disability or disease. The insurance carrier will monitor the insured’s progress on a yearly basis. That is, depending upon the diagnosis, in order to continue waiving the premiums.

If this policy is a permanent plan, the cash value of the policy won’t decrease. Instead it will continue to grow. Certainly not a disqualifier when it comes to life settlements. 

Return of Premium Life Insurance Rider

A return of premium life insurance rider is bought with some term life insurance policies. This rider will certainly make your premiums more expensive. At the end of the policy’s term, the policyholder recoups the total premiums paid into the policy.

Basically this rider makes your policy a holding place for your money that you can potentially get back at the end of the term. 

Guaranteed Insurability Rider

This rider allows you to increase your coverage after issuance. But you do this without having to answer medical questions or take a medical exam. Consequently, premiums will increase depending upon the death benefit chosen. Your policy will also have a certain age cut-off where this rider no longer applies.

The Benefits of Life Insurance Riders

life insurance riders

There are many different life insurance riders that you can add to your policy. Even though the riders mentioned are some of the more common ones, this is far from a complete list. As you now know, there are some significant benefits to including riders in your policy.

Life insurance riders significantly influence the death benefit a beneficiary will receive. They also add benefits to a policy in other ways. 

Overall, customizing policies makes life settlements unique. The benefits associated with a policy will certainly increase the value of the policy if you decide to sell it. On the other hand, the policy’s benefits that have already been used will decrease the value.

If you’re wondering how much your life insurance policy is worth, start with a policy calculator. If you’re considering a life settlement, reach out to Windsor and we’ll discuss your situation and the options available to you.

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