 Personal Finance PowerPoint Presentation. Life Insurance Riders. Prepare to get financially fit by practicing personal finance. Life insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process and place something like set the goals. Develop a plan to reach them, put the plan in action, review the results and repeat the process periodically. Most of this information can be found at Investopedia 8 Common Life Insurance Riders, which you can find online. Take a look at the references, resources, continue your research from there. This by Puja Dave updated May 23rd, 2022. In prior presentations, we've been taking a look at insurance in general, then moving to the life insurance, keeping in mind the two major categories of life insurance, that being the term life insurance or pure life insurance, the life insurance that we wanna first thinking about and compare all other life insurance to in general and then the permanent life insurance. Keeping those categories in mind, we're now talking about the eight common life insurance riders. Riders are additional benefits that can be bought and added to a basic life insurance policy. So obviously you got the life insurance policy, possibly putting add-ons to it in essence, those being the riders. These are another things that you wanna have a decent idea about if you're thinking about purchasing life insurance, especially if you're purchasing more complex life insurance because you wanna know what your plan is because it's likely if you're talking to an insurance agent that makes commission off of selling insurance that they'll try to sell you riders because you might get a bigger benefit on the commission side of things. That doesn't mean the riders are not good, but it does mean that you wanna do your own kind of research as to what specific insurance you need. I would always first be looking at the basic insurance, which is the term insurance and decide if you have some reason to purchase something other than straight term insurance and then also get into basically the riders and other kind of things that could be involved. They're possibly discussing these things out with a third party like a CPA or a lawyer or a financial planner who's not getting paid directly from selling the actual insurance to get an independent decision. Okay, so they allow you to customize a policy and can provide several keys or kinds of protection if you meet their conditions. Buying a rider means paying extra, but generally the additional premium is low because relatively little underwriting is required. So there's not a whole lot more work in terms of the underwriting side, but obviously it is gonna be paying extra for the added benefit or the added rider. Here are eight common life insurance riders and what they cover. So got number one, guaranteed insurability rider. This rider allows you to purchase additional insurance coverage in the stated period without the need for further medical examination. So if you got the baseline insurance coverage at some point in the future, you might determine that you would like more coverage and possibly have the ability to do so a bit more easily without the added medical examination. Obviously the medical examination can be a tedious step and it can be a restrictive step in that if there's been some medical condition or medical problem that would increase the premiums, that of course would be an obstacle to purchasing more insurance in the future in normal circumstances. A guaranteed insurability rider is most beneficial when there has been a significant change in your life circumstances, such as the birth of a child, marriage or an increase in your income. So you might say if I have one of these things taking place, you might then want more insurance coverage at that point in time in the event that you died prematurely given the fact that more people are dependent upon you and or have become accustomed to higher income levels. So if your health declines with age, you will be able to apply for extra coverage without giving any evidence of insurability. So they still have your age obviously if you were gonna purchase more insurance, but you don't, if you got sick or something like that, which you'd usually restrict you from insurance or increase the premiums with that factor, you might not have to go through the medical examination in that case, which could be a benefit. So this type of rider may also provide a renewal of your base policy at the end of its term without medical checkups. So you might have a term policy that ends at some point in time and have the capacity to renew it without the medical checkup. Guaranteed insurability riders may end at a certain age. Two, we got the accidental death rider. An accidental death rider pays out an additional amount of death benefit if the insurer dies as the result of an accident, as opposed to what, suicide? So the question of course you'd wanna lock down is what does that mean dying as the result of an accident if you're looking into the accidental death rider? But normally the additional benefit paid out on death due to an accident is equivalent to the face amount of the original policy, which doubles the benefit. In the event of death due to accidental bodily injury, the insurer's family gets twice the amount of the policy and that's why this rider is called double indemnity rider. If you are the sole provider for your family an accidental death rider can be ideal because the double benefit will take good care of your surviving family's expenses in that event. Number three, waiver of premium rider. Under this rider, future premiums are waived if the insurer becomes permanently disabled or loses their income as a result of injury or illness prior to a specified age. Disability of the main breadwinner can have a crippling effect on a family and these circumstances the rider exempts policy holders from paying the premium due on the base policy until they are ready to work again. So you've got kind of this somewhat of a disability insurance kind of component that's being put into place tying it together with the life insurance in some ways because obviously if there's some kind of disability then you got similar kind of situations in that you're not gonna be able to rely on the income as if you were to die obviously your family members wouldn't be able to rely on the income. So then with this rider the questions would be do I need this added rider or possibly should I just buy term life insurance and then have other forms of basically disability insurance that we've talked about in prior presentations. So a waiver of premium rider can be valuable particularly when the premium on the policy is high. The definition of the term totally disabled may vary from one insurer to another. So be aware of the terms and conditions of your specific rider. Number four, family income benefit rider. In case the insurer dies a family income benefit rider will provide a steady flow of income to family members. When buying this rider you need to determine the number of years your family is going to receive the benefits. So now you basically have kind of a similar thing as a death benefit but it's kind of like an annuity type of payment in that it's gonna be paying out the income in a similar fashion as kind of like you might be earning your salary. So the merit of having this rider is obvious in case of death their surviving family will face fewer financial difficulties thanks to the regular monthly income from the rider. Number five, accelerated death benefit rider. Under an accelerated death benefit rider an insured person can use the death benefits if diagnosed with a terminal illness that will considerably shorten their lifespan. So now once again we've got kind of a mix between life insurance and something that you could use basically for kind of like a medical insurance in a classical sense of medical insurance if you had like a financially devastating event. But again the questions would be, well do I need this kind of rider or this more complex life insurance or would it be better for me to basically by the term life insurance and which would be cheaper and then invest the difference for the investment component and then basically think about medical insurance and other kinds of insurance to cover my insurance needs. Having these overlaps of different kinds of things and insurance kind of bundled insurance can be a little bit confusing and it could wind up in having basically multiple coverages for some things that may be unnecessary. So those are the questions you kind of want to think about when you start to group up multiple things like having insurance policies be somewhat of an investment instead of breaking out your investments separately and like an IRA or something like that or bundling multiple times of insurance such as kind of like medical insurance and disability insurance into life insurance which can add a level of kind of complexity although it could have benefits to it as well. So on average insurers advance a percentage of the death benefit of the base policy to the insured. Insurance companies may subtract the amount you receive plus interest from what your beneficiary has received on your death. Most often a small premium or in some cases no premium is charged for this rider. Insurers have different definitions of quote terminal illness end quote. So check what the rider covers before purchasing it. Number six, child term rider. This rider provides a death benefit in case a child dies before a specified age. After the child reaches maturity the term plan can be converted into permanent insurance with coverage up to five times the original amount without the need for medical exams. Number seven, long-term care LTC rider. So in the event the insured has to stay at a nursing home or receive home care this rider offers monthly payments. So again, this rider kind of looks something like long-term care insurance in some ways. So the question would be, well, should I just buy like term insurance and be covering insurance in the event that I die and then basically get long-term care insurance which would basically cover me in the event that I need care consistently for long-term care and by that or do I wanna kind of package these together in some ways which means again, you could have some overlap and a little bit confusion in terms of what exactly is covered by what and some overlap could result in double coverage which might be a little bit unnecessary. So those are the questions you wanna be keeping in mind with these kinds of riders when they're kind of going out the range or going outside of the area of traditional just basically insurance. So although long-term care insurance can be bought individually, insurance companies also offer riders to take care of your long-term care costs. Number eight, return of premium rider. Under this rider, you pay a marginal premium and at the end of the term, your premiums are returned to you in full. In the event of death, your beneficiaries will receive the paid premium amount. Insurers sell return of premium riders with many variations so make sure you understand the phrasing of the rider before you buy. What is a rider in insurance? A rider is an addendum to an insurance policy that adds additional coverages or other benefits. Riders will typically come at an extra cost. How much does an insurance rider cost? A rider's cost will correspond with the added coverage or benefits it provides. So it depends, of course. Most, however, are relatively low in cost as they involve minimal underwriting and are less likely to be used by the insured. What is the difference between term life insurance and whole life insurance? We've been discussing this kind of as we go and remember when you're talking to someone that's an insurance agent, it's likely that they might be saying, they have an incentive, in other words, if they're paid by commission to possibly sell the more expensive policy, which would be the permanent policy, whole life policy and possibly then add as many riders as they can kind of tack onto it. Not to say that those things are bad, but to say that you wanna keep those things in mind and always be comparing to the baseline, which is pure insurance, term insurance. So term life insurance provides a death benefit for a certain number of years and then expires if unused. Whole life is a form of permanent life insurance that lasts your entire life. Whole life also comes with a cash accumulation component. While term life does not, because of these reasons, term premiums are less expensive. Why wouldn't you want riders on a life insurance policy? Why not get the riders? Why not? Many riders come with a cost because they cost more. Therefore, if you don't need or don't expect to use certain features or benefits provided by a rider, they could be an unnecessary expense that increases your insurance premiums. So it's kind of like if you buy a car oftentimes and then the salesperson says, well, don't you want this? Don't you want the alarm system? Don't you want us to put a special, you know, waxing coat on it or something like that and the special feature of this and that? And you're basically saying, well, man, I'm already spending like 70,000 on a car. I guess it's, you know, another $1,000 isn't that big a deal. It's the kind of similar thing here. Obviously the cost compared to the insurance price itself may be minimal, but it is a cost and it's a cost that's gonna possibly increase the premiums and over time you are paying the premiums generally on a monthly basis. So it can tack on and add up. So what is the bottom line then in all this stuff? That's what I wanna know. Most insurers don't allow you to modify your insurance policy according to your individual needs, but writers can help customize coverage. Always be sure to read the fine print before you add a writer to a life insurance policy. If needed, sit down with an insurance advisor to evaluate the benefits of writers and then buy the one best suited to you and your family.