Family Life Insurance Riders, Explained

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• Usually, life insurance riders are chosen when the life insurance policy is purchased.
• Child riders, waiver of premium, terminal/critical illness, and return of premium riders are the most common types of family life insurance riders.
• Some life insurance riders provide benefits in the event of illness, injury, or death.

Life insurance riders are similar to add-on coverage available with homeowners or auto insurance policies. Customers add riders to life insurance riders to enhance and customize their life insurance with added benefits and coverage. For example, child death riders provide coverage in the case of the death of a policyholder’s child — it’s like adding them to an existing life insurance policy. 

While it may seem confusing to understand what family life insurance riders are, purchasing life insurance and the right riders doesn’t actually have to be stressful — at least, not if you do your homework and a bit of reading. 

Family Life Insurance Riders

Waiver of premium rider

A waiver of premium rider waives all premium payments in the event the insured becomes seriously ill, disabled, or injured. Often, age and health requirements must be met before an insurance company will allow the rider to take effect — this includes getting a physician’s statement as well as a notice from the Social Security Administration. This type of rider must be purchased at the onset of the policy and can not be purchased later on. 

The waiver is usable as long as the insured is unable to work at the job in which they previously received training and worked. If you have a pre-existing condition that you anticipate will limit your ability to work one day, it’s unlikely your insurance provider will allow you to purchase a waiver of premium rider. 

When you purchase this rider, your insurance provider will place you on a waiting period before you will be able to use it. Should you become injured, disabled, or seriously ill during the waiting period, the life insurance provider will likely refund all premium payments and cancel your policy. 

Terminal illness & critical illness rider

A terminal illness rider allows a person who already has life insurance policy to take out a percentage of their death benefit if they have been diagnosed with a critical illness. The money that is taken out may be used for anything. Many people use it to travel, pay off debts, or pay for end-of-life care. Only a portion of the death benefit may be cashed out, but many companies allow people to take out as much as 50% of their death benefit.

Any money not used by you is still given to your beneficiaries. If you outlive your prognosis, nothing changes. You are not expected to pay the money back. As long as you continue to make payments, your beneficiaries will receive any remaining amount from your death benefit. 

Return of premium rider

Return of a premium rider is one of the more interesting types of life insurance in that the insured receives all payments made if they don’t die during their term — meaning, in the end, they will have effectively paid $0 to be insured. Of course, there is a drawback. A return of premium rider can increase the cost of the term life insurance.

An argument against this rider is that you could instead consider investing the extra cash you’d spend on the higher premium and that that money would likely outgrow the amount you’d get back. However, for people with a low risk tolerance, a return of premium rider can ease these financial worries.

Child rider

A child rider provides a death benefit in the event that one of the policyholder’s children dies while the main policy is active. It is purchased by parents to cover funeral costs and time spent away from work during the grieving process. The most common death benefits is between $5,000 and $25,000, but amounts vary with each insurer. 

For the most part, children do not have to undergo a medical examination, but it is likely the insurance provider will ask a range of questions about the child’s health. If it’s determined that the child has a serious pre-existing condition, they may not be able to be insured under the child rider. 

If you have multiple children, a single child rider will cover all of your children unless it’s determined that one of them has a pre-existing condition. If this is the case, it’s possible some of your children will be covered while others will not. 

Term vs. Permanent Life Insurance

There are two types of life insurance: Term and permanent. 

Term life insurance is life insurance that covers the policyholder for a very specific period of time. It’s a smart choice for parents concerned about the well-being of their children. Permanent is its opposite. It is life insurance that covers you for the rest of your life provided you keep up with your payments. 

There are four types of permanent life insurance:

• Whole: This type of permanent life insurance comes with a guaranteed death benefit as well as a savings account. The savings account grows over time and can be cashed out or used as a collateral for a loan. A drawback to whole life insurance is that if the savings account is not used before you die, it is not given to your beneficiaries. 
• Universal: Universal is similar to a whole life insurance policy, a universal life insurance policy has a cash value account, which can be used to lower premiums as it grows. 
• Variable: Under variable life insurance, the savings account can be invested in stocks, money market mutual funds, or bonds. There is risk involved with this type of life insurance, but it’s possible your money may grow more quickly. Also, if your investments do not perform well, your death benefit may decrease in value. 
• Variable Universal: This is a hybrid of universal and variable life insurance. Policyholders can invest the money from the accompanying savings account and change the price of premiums as necessary. It’s potentially risky and rewarding at the same time.  

How to Shop for Life Insurance

• Length of coverage needed: If you’re only purchasing life insurance because you have children, then you should probably consider term life insurance and invest the rest of your budget elsewhere instead of purchasing permanent. 
• Budget: Ask yourself if your budget allows for additional riders. Is there a rider you need, but you can’t afford permanent life insurance? Are you only really looking for help with funeral expenses? Term life insurance provides larger payouts, but is not guaranteed. Permanent does offer a guaranteed payout, but the amount is less (which is why it’s often used for funeral expenses).
• Family history: Have several members of your family fallen ill well before what should have been their golden years? You should ask an insurance provider about its terminal illness rider or death rider. 
• Personal health history: Do you have a history of being ill? This is not indicative of a future illness, but it does possibly suggest that you, like many people, may have some issues as you age. Therefore, it might make sense to purchase the guaranteed insurability rider when purchasing your policy.