Do you need a Life Insurance Rider?

| August 3, 2012

Life Insurance

Getting the right life insurance can be tricky. Once you have chosen the type of life insurance you want, the level of cover that is right for you, and decided how much you can afford to spend on it, you would think that would be the end of it. However, there are few more things to think about before you lock in your choices.

A rider is an add-on feature that can be purchased in conjunction with your life insurance policy. Riders offer extras that may not be available in standard policies, and can be used to tailor a policy so that it better suits the insured party.

Each life insurance provider will offer different types of riders. The riders offered by each insurance provider will vary, so it’s important to read the small print before you sign up. The cost of each rider will also vary, but it should generally cost about 5-10% of the base policy.

It is usually cheaper to add a rider onto the policy when you first purchase it, rather than later on. There are generally no restrictions on how many riders you can add to a policy, so it is up to you which ones to add on.

Popular Life Insurance Riders

Return of Premium Rider

If you choose a term life insurance policy, there is the possibility that you will outlive the policy. If this happens, then you run the risk of paying all that money into the policy without actually getting anything back. With this rider, if you outlive your policy, you will usually get back all the money that you paid in premiums to the insurance provider. Remember that it will cost you more each month for this rider, so you will need to weigh up if it is worth the extra cost. The AAMI website is a good place to begin doing research.

Term Conversion Rider

Choosing term life insurance can be cheaper early on, compared to permanent life insurance. By choosing this rider, it gives you the opportunity to convert your term policy into a permanent policy, without the need for a medical exam. With permanent life insurance, you will be covered permanently, so your beneficiaries will always receive your life insurance benefit. If you have a term policy and you outlive it, your beneficiaries won’t get that benefit. There will usually be a deadline for converting, and other regulations may also apply.

Guaranteed Insurability Rider

If you need to buy extra life insurance later on, this rider will ensure that you can buy the additions without having to prove your insurability, and without having a medical exam. You will usually be able to buy the additional coverage at certain intervals throughout the policy, for example every three years, or when you reach certain ages. This can be a great option, as people who find out they have a medical condition later on in life can find it very difficult to get cover.

Waiver of Premium Rider

If you are unable to pay your premiums because you have become completely disabled and can’t work, this rider will waive the premiums. This means your policy will continue, and you will still be insured. Be aware that some waivers will expire when you reach a certain age.

Child Protection Rider

This rider can provide additional coverage for child dependents. It can offer a lump sum payout should your child die. It can help to cover the costs of funeral expenses, or it could help to cover the costs of lost income if you are unable to work. While this type of cover is something no one wants to think about, it can offer valuable cover, should the worst happen.

Accidental Death Benefit Rider

Adding this rider to your life insurance policy can increase the benefit paid to your beneficiaries if you die as the result of an accident. The rider can mean the original payout is doubled, in which case, this rider will be referred to as double indemnity. This kind of rider can also offer extra payouts if you are injured as a result of an accident. This could mean you will get a payout if you lose a limb or your sight. Bear in mind that some insurers may offer this rider at a higher cost if you have a high-risk job or hobby.

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Category: Personal Finance

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