Life (insurance) hacks: the 6 life insurance riders you may need

Share
More
Life (insurance) hacks: the 6 life insurance riders you may need

Life hacks: they’re the tricks, skills, and shortcuts that help people become more productive in their day-to-day lives. Life hacking is about customization and turning the things around you into tools for a more productive you.

When you’re shopping for a life insurance policy, you can do the same thing. You don’t have to get the same cookie cutter life insurance policy as everyone else: you can customize it using something called life insurance riders.

Riders are like mini-contracts that are amended to larger, existing contracts. In the case of insurance policies, they can provide additional coverage or change the terms of the standard contract to expand what your term life insurance covers.

Not everyone needs all of the riders on this list, but we think these are the ones with the most benefits for the largest amount of people. If you’re looking to customize your life insurance and get the most bang for your buck, start with this list.
We included examples of "legalese" from real life insurance policies, but this doesn’t mean that this is how the rider will be defined on your policy. Always read your policy and work with your broker to understand what you’re paying for.

  1. Disability Income Rider

  2. Disability Waiver of Premium

  3. Term Conversion Rider

  4. Acceleration of Death Benefit Rider

  5. Long-term Care Rider

  6. Critical Illness Rider

Disability Income Rider

What does it do?
Basically, if you become disabled and unable to work, your life insurance company will provide you with a monthly stipend to replace your income.

It’s like a long-term disability insurance policy, but instead of just buying a separate long-term disability policy, it’s a rider on your life insurance policy.

The Legalese
"Can provide a regular monthly benefit up to 2 years to the primary insured if they are unable to work due to a covered illness or injury. The definition of disability is ‘own occupation’ for the first 12 months and ‘any occupation’ after the first 12 months. Premiums for the Term Policy and all riders are waived while your client is receiving disability benefits."

How do I know if I need it?
We think LTD insurance is important. You have a 25% chance of experiencing a disability before you retire, and LTD insurance is the best way to protect yourself from any loss of income resulting from a disability.

Generally, disability income riders are not as robust as standalone LTD policies.

If you can’t afford or qualify for a standalone LTD policy, a disability income rider on your life insurance policy is the next best thing.

Case Study
Ryan, a ski instructor, unfortunately tore his ACL during an intense hot yoga session. He didn’t have a long-term disability insurance policy, but because his life insurance policy had a disability income rider, he was able to collect a small monthly stipend to support himself through physical therapy. His New Year’s Resolution was to never go to hot yoga again.

Disability Waiver of Premium

What does it do?
If you become totally disabled, you don’t have to pay your life insurance premiums. You’ll still have the same life insurance policy you bought - nothing will change about the term or death benefit - but your premiums will be waived until your disability ends.

Each life insurance company will have a different idea of what constitutes a disability, so if you’re comparing policies with this rider, make sure you read the fine print on both of them. Always make sure you know what you’re buying. Your broker can help you interpret some of the legalese.

The Legalese
"This rider waives all premiums on the base policy if the insured becomes totally disabled without interruption for at least six months. If the disability starts before the policy anniversary when the insured is age 60 and the disability continues without interruption to age 65, then all future premiums are waived."

How do I know if I need it?
If you don’t have a long-term disability policy or the savings to cover a period of unemployment, a disability waiver of premium could help you save money during those rough few months to years. We suggest getting a long-term disability policy first, though.

Case Study
Marcia, a yoga instructor, bought a life insurance policy with a disability waiver of premium rider. Good thing, too - three years later, she broke both of her legs in a skiing accident. Since it’s hard to instruct yoga from a wheelchair, Marcia went on disability leave. Thanks to her rider, she didn’t have to pay her life insurance premiums and she kept her policy. Though she did have to deal with a physical therapist who thought it was funny to say, "Marcia, Marcia, Marcia!" every time he saw her.

Term Conversion Rider

What does it do?
The term conversion rider, normally built-in to every life insurance policy, allows you to convert a term life insurance policy into a permanent life insurance policy without having to take another medical exam.

The Legalese
"This Policy may be converted to a new policy on the Insured’s life. Evidence of the Insured’s insurability is not required."

Do I need it?
Since it usually comes with every term life insurance policy, you should be aware of it and of the options that your life insurance company provides. If the policy you’re considering does not include it, ask the life insurance company why and if they provide the rider at extra cost.

If you’re looking for the flexibility to convert your term policy into a permanent policy, a term conversion rider can make that process easier than if you were to buy a new permanent at the end of your term policy.

Case Study
Daniel’s life insurance policy had a term conversion rider. So did everyone else’s. Nothing was special about Daniel.

Acceleration of Death Benefit Rider

What does it do?
Let’s say you’re diagnosed with cancer and you’re going to die in three months. In the months leading up to your death, you’re going to incur a lot of medical expenses. With an acceleration of death benefit rider, you can start getting your death benefit paid out to you in advance to help cover those medical costs.

The Legalese
"The Acceleration of Death Benefit Rider provides payment of all, or a portion of the death benefit, of the amount that would normally be paid to the beneficiaries upon the death of the insured, while the insured is alive if they are determined to be terminally ill with 12 months (24 months in some states) or less to live."

How do I know if I need it?
A lot of life insurance policies come with this rider built-in, but if yours doesn’t, then we suggest adding it to your policy. Terminal illnesses can become very expensive very quickly, and getting your death benefit in advance can help prevent your family from going into debt.

Case Study
Richard’s family was devastated when he was diagnosed with terminal brain cancer. The costs quickly became astronomical and difficult to comprehend, and Richard’s wife was terrified of both losing him and going into debt. Thanks to the acceleration of death benefit rider on his life insurance policy, however, Richard was able to get money to cover his huge medical expenses, allowing his wife and family to say goodbye without the specter of debt hanging over their heads.

Long-term Care Rider

What does it do?
A long-term care rider is a lot like a long-term care insurance policy. It will take money out of your death benefit in order to pay for long-term care (a nursing home or a private nurse, for example).

Long-term care riders and accelerated death benefit riders are sometimes called the same thing at life insurance companies. We separated them because there are often different ways to qualify for them. An accelerated death benefit rider like the one described above is triggered by a terminal illness. Long-term care riders are triggered by chronic illnesses that take away your ability to take care of yourself.

The Legalese
"A long-term care rider will accelerate the death benefit to help pay for the costs of long-term care services for chronically ill insureds. To qualify for an LTC rider, the services required by a chronically ill individual must be provided pursuant to a plan of care prescribed by a licensed healthcare practitioner. An individual is considered chronically ill if he/she is unable to perform at least two of six Activities of Daily Living without substantial help from another person for at least 90 days due to a loss of functional capacity. An individual may also be considered to be chronically ill if he/she needs substantial supervision to protect his/her health and safety because of a severe cognitive impairment."

How do I know if I need it?
Long-term care riders have been especially attractive products in the last few years, with several life insurance companies pushing them as "hybrid products." Stand-alone LTC policies can be expensive and hard to qualify for, so many consumers have seen LTC riders as pretty good deals. They feel like they’re not wasting their money in case they just kick the bucket and don’t need long-term care.

If you’re thinking about a long-term care rider, just remember that they’re taking the money out of your death benefit. If you got the life insurance policy to pay off your debts after you die, an LTC rider will reduce the amount your heirs have to achieve that.

Case Study
Nikki never saw the truck that hit her car, and even if she did, she probably couldn’t remember it. She survived the accident, but just barely, suffering major brain injuries. Though doctors are cautiously optimistic, her recovery has been slow, and she’s just beginning to string words into sentences again. Luckily, the long-term care rider on her life insurance policy provides the money to pay for her care, allowing her family to focus on providing for Nikki’s emotional needs, not her economic ones.

Critical Illness Rider

What does it do?
Sometimes sold as a separate product, the critical illness rider acts as insurance against a catastrophic health crisis. A lot of these illnesses are survivable - with a ton of medical treatment and expenses. The critical illness rider will give you a lump-sum benefit, taken out of your death benefit, that will help you cover unexpected medical costs and other expenses.

The Legalese
A life insurance policy with a critical illness rider will pay out a lump-sum benefit to the insured if they are diagnosed with a covered critical condition (such as cancer, stroke, or a coma). This benefit is accelerated from your death benefit.

Do I need it?
If you can’t self-insure for a critical illness through savings, then yes. Because it can be incredibly difficult to save the large amount of money needed to cover a critical illness, some consumers opt for some form of critical illness coverage.

Critical illness riders are sometimes more cost effective than a standalone critical illness insurance policy. They may also be cheaper than some disability policies.

Case Study
Luna was an avid urban biker. New York City taxi drivers are avid violators of traffic laws. The two finally met, sending Luna into a coma from critical head injuries. Don’t worry - she woke up. But because she was in her early thirties, she didn’t have nearly enough saved to cover the cost of her hospital stay. Luckily, she paid for a critical illness rider on her life insurance policy, which gave her enough money to cover her hospital bills and buy a new bike.

Wait, so what’s the difference between the last three?

We know that the differences between the last three are subtle, especially since life insurance companies will often use names that confuse the differences between these riders.

Here’s a quick summary: Acceleration of Death Benefit Riders are designed for terminal illnesses. Long-term Care Riders are designed for chronic illnesses that take away your ability to take care of yourself. Critical Illness Riders are designed for one-time medical conditions that are expensive but don’t have repeating costs.

The best way to shop for life insurance

PolicyGenius is an online insurance broker that brings the insurance shopping experience online. Our life insurance quote engine will get you the cheapest life insurance policy possible. When it comes to the application process, our team of experts will work with you every step of the way to get you the policy you need at a price you deserve.

Still have questions about life insurance? Check out our life insurance guide now.