So you’re looking at term life insurance policies. You know they’re a good choice to protect your family. But you're looking for a policy with more flexibility than what a traditional policy provides, or maybe you want to add on a few more safety nets. And you've heard that these things called riders can help with that.
Luckily, while other people are standing around asking, "what is a rider on a life insurance policy?" you've already read all about using riders as a way to customize your policy.
Riders are like mini-contracts added to your overall life insurance policies. A waiver of premium rider, for instance, will allow you to suspend premium payments for a time if you become disabled and can’t work. Riders are a good way to tailor a policy so you’re covered in a way that a standard policy might not be able to accommodate.
But these extras must cost extra, right? Don’t riders increase the cost of your life insurance policy?
The definitive answer is...sometimes.
Seems like a copout, right? The truth is, there are a ton of different riders you can add to your life insurance policy. Some cost money, while some don’t.
It’s easiest to see a real life example, so let’s take a look at Banner Life. Banner Life offers riders for waiver of premium, children’s term, and accelerated death benefits.
With an accelerated death benefit rider, you can access some or all of your death benefit if you are diagnosed with a terminal illness over the course of your term. That helps you cover expensive treatment or care without having to worry about your family dealing with it when you’re gone.
The accelerated death benefit rider is available at no extra cost with Banner Life, and that’s actually pretty standard across most life insurers. Term conversion riders, which lets you turn your term life insurance policy into a permanent policy without needing to retake your paramedical exam, are also usually available for free.
A children’s term rider, on the other hand, will cost you a little more each month. This rider provides life insurance for your children for a set term, usually for less than five dollars added to your monthly premium. While this is an extra cost, when you compare it to the expense and complication of getting a separate whole life insurance policy for your kid, the $50-70 you’ll spend over a year makes it a more attractive alternative.
Then there are riders that can add a lot more to your premiums. A return of premium rider sounds great on the surface: if you outlive the term of your policy, you can get back the money you put into it. But it adds around a 30% markup to your premium costs and could end up tripling your premiums.
You might not think that matters if you’re getting that money back, but if a $40 per month policy is suddenly $120, where are you going to get that money from? Even if your monthly premiums only jump 30% to $52, that’s over $100 a year you have to find. And that’s not even considering what you could be doing with that money instead, like putting it into a pre-tax 401(k) or an IRA for retirement. If you invest it correctly, you could be using the difference to make more than you would have spent on the rider.
The most important thing when it comes to riders is to only purchase the ones you’ll need for your situation. You don’t want to pay unnecessarily for riders that offer extras you don’t need. (You’ll feel pretty silly if you and your spouse have decided you don’t want kids and you’re paying for a children’s term rider…)
Find out what riders an insurer offers, which ones you’ll need, and how much they’ll cost you. Life insurance is all about providing a financial safety net for your family, and it starts with being cost-conscious of the policy you choose and tailoring it to your specific financial and personal needs. Before adding riders to your policy it's worth speaking with a licensed life insurance agent who can fill you in on the best riders and insurers for your needs.