When purchasing a life insurance policy, there will be a number of optional riders available to you – usually for an additional charge. Some of these riders will require you (the insured person) to provide evidence of insurability (eligibility) for that rider.
Here is a brief explanation of the most important riders available:
Waiver of Premium
This rider can be considered a disability benefit as it applies only in the event of you becoming totally disabled before the age of 60 or 65. Following on from an initial waiting period, you will not be required to pay any further policy premiums in this instance. Your full insurance coverage and benefits will be unaffected and the rider will continue to operate for the duration of your disability.
Generally this is a valuable yet inexpensive addition.
Automatic Premium Loan Provision
This rider is designed to assist in maintaining policy coverage in the event of non-payment of premium.
If you have either missed or been unable to pay the premium and the (31-day) grace period has expired, this rider will cover the cost of that premium using any cash value that has accumulated in the policy. This is a benefit that can be elected by you and cancelled at any time.
Note: The cash value of the policy must be at least the cost of the outstanding amount plus one year of interest.
Waiver of Mortality Deduction Charges
This benefit operates in much the same way as the disability waiver of premium, except that it covers only the mortality deduction charges. The mortality deduction charge is the portion of your premium that is required by the insurance company to cover the cost of your life. The remainder of the premium is usually invested.
Typically this rider is offered with flexible premium universal life policies.
Limited to a percentage of the death benefit, this rider provides you with a monthly income should you become totally disabled during the period of coverage. An initial waiting period must expire before payment commences.
Accidental Death Benefit
This extension can provide an additional amount of coverage should your death occur as a result of an accident. In some cases this benefit can be as much as three times that of the standard policy amount provided for accidental death.
There are however exclusions to this rider; accidental death must occur prior to the age of 65 and death by sickness will not be covered. There will also be other exclusions.
Guaranteed insurability will allow you to purchase agreed amounts of additional coverage at specified intervals. This means you can ‘top up’ your insurance benefit without having to prove insurability. This can be particularly beneficial if your coverage need increases such as in the event of your marriage, or the birth/adoption of a child.
Typically there is an age limit to this rider; generally you will not be able to ‘top up’ your policy coverage in this manner after the age of 40.
Cost of Living Rider
In order to assist in offsetting your increased insurance needs that may occur as a result of inflation, you can add the cost of living rider to your policy. With this benefit in place you can purchase more insurance annually, the value of which is based on the cost of living index.
Typically the premium for the additional annual coverage is calculated using low rates and generally you do not need to provide evidence of health or insurability.
Payor Benefit Rider
If a policy has been taken out for a juvenile, this rider may be added. In the event of the payor (the person who pays the premium) dying or becoming totally disabled before the juvenile reaches majority age, then this benefit can allow for the future premiums to be waived (cancelled). The policy benefits for the juvenile will remain in force.
This rider enables you to obtain level term coverage for the life of your spouse under your policy. In addition, your spouse will be able to convert this level term into a permanent policy without needing to provide evidence of insurability. This conversion however, would need to be completed prior to your death or to the expiry of the rider.
A children’s rider operates in a similar way to the spouse rider by allowing you to obtain level term coverage for the life of your children. Typically this rider may be charged at one agreed rate, which will enable you to add your children as required, without increasing your premium.
Generally the children’s rider will also allow for each child to convert their coverage from term life to permanent life without evidence of insurability. This is subject to conversion occurring before your death or before the expiration of the rider.
If you require temporary additional coverage, then a term rider may be added – usually to an existing permanent policy – to provide supplementary insurance protection for a fixed period. This rider can also be useful if you require a decreasing amount of coverage for a specific term.