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The 10 most useful life insurance riders

Life insurance can protect your loved ones if the unthinkable happens. However, a life insurance policy can actually help you while you’re still alive if you add riders. 

Riders are add-ons to your policy. They provide extra protection, but it usually comes at a higher cost. 

There are many life insurance riders. Which one makes sense for you depends on your situation and what you want from the policy. 

"The two most common riders are disability waiver of premium (DWP) and accidental death and dismemberment (AD&D)," said John Seltzer, CLU, Engle-Hambright & Davies, Inc. "DWP continues to pay the premium on your policy in the event you become disabled and cannot work. AD&D, sometimes referred to as double indemnity, pays an additional death benefit in the event you die in an accident. Many times, that amount is equal to the face amount of the underlying policy -- hence the name double indemnity. This benefit also pays in the event you become dismembered or lose the use of limbs, eyes or hearing."

Here are 10 life insurance riders that could be available to you. 

1. Waiver of premium rider

Should you become disabled and you're unable to work, this will ensure you don't have to pay the premium. The waiver of premium rider provides benefits only if you become disabled, after which the charges won't apply, but the policy is still active. 

This waiver often expires at age 60 or 65. 

 

2. Disability income rider

A disability income rider allows you to collect a regular income from the insurance company if you become disabled and can’t work. The rider specifies the amount you’d receive and the length of time. 

Some disability income riders pay out only if you became disabled from an accident, while others include sickness coverage.

 

3. Guaranteed insurability rider

This rider allows you to purchase additional life insurance coverage at a later date without undergoing a medical exam or giving any evidence about your insurability. Health is unpredictable, and your health status can fluctuate. Plus, as you age, you become a bigger risk. That means your life insurance rates would increase. 

With this option, however, you can get more insurance at specific intervals, such as every three years, or at certain ages.

 

4. Term conversion rider

Term life gives you coverage for a certain period. However, a term-to-perm conversion rider lets you transform your term life policy to permanent life insurance. 

Why would you want to convert from term to perm? Your life may have changed. You bought a term life policy with a higher payout when you were younger and had a hefty mortgage. 

Now, maybe the kids are all out of college and you paid off your mortgage. You might just want a death benefit that will help with final expenses. This rider lets you convert your policy without taking a medical exam. There’s usually a deadline to convert the policy, so make sure you transition the policy in time. 

 

5. Accelerated death benefit rider

This rider allows you to collect part of the policy's death benefit should you become terminally ill with a short life expectancy (a year or less, usually). The policy spells out how much of the death benefit is available before death. Policies usually cap this at $250,000 to $500,000.

You can use the proceeds for anything, such as paying medical bills or living expenses. The accelerated death benefit rider is often part of term life policies. It’s usually added at no cost or a small amount. However, the company may charge a fee if you tap into the rider.

 

6. Critical illness rider

If you've purchased a critical illness add-on, the insurer will give you a lump sum if you're diagnosed with a critical illness. The insurer specifies the illnesses in the policy. It’s often issues like cancer, heart attack and stroke. 

The rider provides money to use for any purpose during treatment, rather than reimbursing you for medical expenses. If you tap into a critical illness rider, your beneficiaries will get a small death benefit. 

 

7. Child protection rider

A child protection rider is an add-on that insurers offer that provides coverage for your child in case of death. The death of a child might not mean income loss, but this tragedy could cause financial consequences and burdens. 

The add-on provides coverage for final expenses, which is often an additional hardship for the family. The rider requires information about the child's health and you can usually pay in installments.

 

8. Accidental death benefit rider

This rider provides an additional benefit on top of the policy's regular death benefit if you die from an accident. If the payout equals the original death benefit, it's often called a double indemnity. 

Sometimes the rider also includes additional payment for dismemberment. In that case, it’s called accidental death and dismemberment or AD&D. You collect money if you lose a limb or your sight if you have AD&D.

Life insurers consider your occupation and hobbies when determining premiums for this one. High-risk activities, such as race-car driving, increase rates.

 

9. Return of premium rider

This add-on gives you all your money back should you live to the end of your original term. Some companies write this "return of premium benefit" into the base policy, but most offer it as a separate rider. To get this, you'll pay a much higher premium for the option to get your money back.

How much more? A 50-year-old woman classified as “Preferred Plus” health status would pay on average $1,120 annually for a 20-year policy with a $500,000 payout. The same person would pay $4,226 for a policy with a return of premium rider on average. 

The big question to consider: How does paying the extra cost for the return of premium rider compare to investing that money and buying a basic term policy instead? 

Here's what you do: Subtract the annual premium for a basic term policy from the yearly cost of a return of premium policy. The difference is how much you have to invest each year during the insurance term. Then, calculate what you'd need for an annual rate of return to exceed the amount you'd get back from this return-of-premium policy. 

So, using the example above, you could invest $3,106 each year over 20 years rather than get a return of premium rider. 

Keep in mind that the money from the return of the premium is tax-free. That might not be the case for investment returns.

 

10. Long-term care rider

This optional add-on gives you financial benefits if you need daily care if you’re unable to provide for yourself. This can include in-home, assisted living or nursing home care.

A long-term care rider can be called combination life insurance. Combination life insurance offers a permanent life insurance policy with the long-term care insurance rider. This rider allows you to tap into your long-term savings should you need it. The money goes to the death benefit if you don't ever use it.

A decade ago, people were more apt to have long-term care insurance. Now, the norm is combination life insurance. 

"Combination life insurance is becoming the most common way to purchase long-term care insurance today," said Seltzer. "While there are still some companies selling traditional stand-alone long term care policies, most have discontinued these because of the significant rising cost of these policies. As a result, most insurance companies have turned to these combination policies."

So, which riders are right for you? 

"Whenever purchasing life insurance, you should weigh your options carefully and make sure they fit your situation," concluded Seltzer. "There are many different types of life insurance that can be designed to fit your specific needs. Understand what is guaranteed and what is not. It also isn't a bad idea to get a second opinion."

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