At I&E, we take a unique approach of combining life insurance together with estate planning in a comprehensive, holistic way that focuses on wealth building and legacy creation. This approach uses life insurance and the different life insurance riders available to maximize your policy, based on your unique goals, needs and objectives. The following article covers some of our more popular choices when designing your cash value life insurance.
Life Insurance Policy Riders
We all know how important life insurance is and have a pretty good grasp on what it does. You purchase life insurance for the death benefit, so your loved ones to be able to continue to be financially stable should something happen to you.
In addition, life insurance is an asset, and can be a powerful wealth building tool when used to build cash value.
There are several riders that are available to add to your policy that can help enhance your policy’s death benefit and cash value performance.
Waiver of Premium Rider
The waiver of premium rider protects you if you should suffer a disability. The waiver of premium kicks in if you are diagnosed as totally disabled, and your premium is waived for the remainder of the policy. Which means, if you have whole life insurance, or some other type of permanent coverage, the premium will be waived for the remainder of your disability or your life.
In addition, on certain policies with specific life insurance companies, the WOP rider will also waive premiums due on the supplemental life insurance riders, guaranteed insurability riders and renewable term riders.
Guaranteed Insurability Rider
The guaranteed insurability rider should be on every life insurance policy and is very affordable. It allows the policyholder to increase the benefit amount at specific birthdays, at the time of a marriage, or at the birth of a child, without having to provide evidence of insurability (i.e. you don’t need to submit to life insurance blood testing).
This rider is critical, particularly if you are considering life insurance for children or young adults, because if the insured develops a disease or become uninsurable during the policy period, the insurance company allows the insured to increase his or her total life insurance coverage and death benefit at specific times.
Disability Income Rider
The disability income rider is designed to pay a monthly amount to you should you become disabled. You can add a short-term or long-term rider. The short-term typically pays you for a short period. Long-term is designed for a more permanent situation and usually has a six-month waiting period before benefits begin.
Often, this rider will stop paying after two years but there are options for longer. If you own a business, this would be a good option for a buy-sell agreement or a key person within your organization. Then again, you may also want to consider a stand-alone long-term disability insurance policy as well.
Paid-Up Additions Rider
This rider is also known as paid-up additional insurance and is available on participating whole life insurance policies. This rider is for those who want to build cash value and death benefit at the same time. The paid-up additions earn dividends, and then they continue to compound over time. You may take a loan against the cash value or surrender them at any time.
Overloan Lapse Protection Rider
The overloan protection benefit rider protects your policy from lapsing in the event that your life insurance loan exceeds a certain threshold. Generally, the rider is available on policies that have been in force for 15 years or more. In addition, the insured must be at least age 75.
The main point of this rider is that it protects you in your old age from taking out a loan and not being able to repay it, resulting in your policy lapsing, creating adverse tax consequences. The rider allows the insurance company to work in conjunction with you to prevent more cash from being borrowed against the policy, thereby preventing a lapse.
If your policy has a large outstanding loan and you will have difficulty repaying it to avoid a lapse, it might be better to use the remaining loan balance to purchase a reduced paid-up policy.
Supplemental Term Life Insurance Rider
The STLI rider gives your policy more death benefit protection and helps supercharge the cash value. It is basically additional term life insurance that supplements the permanent life insurance coverage you have.
It is a great option for someone young, who needs additional death benefit protection, but does not want to spend the extra amount on more permanent coverage. The term coverage allows leverage, so more dollars are used towards the death benefit initially.
Overtime, your permanent coverage will grow and the supplemental term coverage will fall off. But if you die while your policy is going through the initial funding period of 5-7 years, you will leave behind a larger death benefit.
Term Conversion Rider
The term conversion rider is an excellent rider that you should add to any term policy if it does not come standard. It gives you the opportunity to convert your term life insurance policy into a permanent policy, whole or universal, without any underwriting. No underwriting means no medical exam or medical history requirements if you already purchased the term insurance.
Term conversion rider is a flexible way to buy a cheaper option with the availability of converting it to permanent insurance policy down the road.
The term conversion rider is great for young people just starting out with a term life insurance policy, who may be considering the benefits of permanent coverage but are not quite yet willing to make a commitment.
Long-Term Care Rider
While a life insurance policy is specifically designed to pay upon death, the long-term care rider will pay should you become critically ill or injured. The long-term care rider will provide a benefit for long-term care services, including nursing homes, assisted living, or in-home care.
Each policy will have different options for this rider when it comes to length of benefit payment and how much it will cost. Of course, this benefit will eat into your death benefit so be sure to have enough coverage by taking into account all possible scenarios.
Chronic Illness Rider
Similar to the long-term care rider mentioned above, the chronic illness rider uses your death benefit to pay expenses associated with chronic illness. While this usually is one lump sum, some policies offer the option of a more long-term payment arrangement, such as a fixed monthly amount.
The caveat to this rider is that you cannot perform two out of six activities of daily living. ADL’s includes eating, bathing, dressing, toileting, walking, and continence. Reasonably affordable, this rider could come in handy some day for you and your family.
Critical Illness Rider
While you may hear of critical illness insurance as a separate policy, it is also available on most life insurance policies. The critical illness rider pays you a lump sum, usually a specified amount, for specified critical events.
Sometimes the circumstances can include cancer, a heart attack, or a coma. The purpose is to help pay for those unexpected medical costs that come with those critical events.
Hospital bills, doctor bills, and even your mortgage payment should you fall behind. The money will be yours to use for whatever you need.
While shopping around for life insurance for your family, you may want to consider the child term rider. An effortless way to cover children is with a child rider on your policy.
It is reasonably cheap, and it includes as many children as you have up to age 18, with additional coverage up to age 25 if they are attending college.
If you have a large family, this may be your best and most affordable option to cover your children instead of getting a policy for each.
Accelerated Death Benefit Rider
The accelerated death benefit rider comes in handy if you are diagnosed with a terminal illness and, depending on the policy, have less than one to two years to live. If you have a qualifying terminal illness, the rider kicks in and your life insurance company will pay you a lump sum from your death benefit of anywhere between 25 and 80 percent.
Most people use this to help finance end of life care, medical bills, and to help keep their family afloat during this difficult time. Most life insurance companies include this rider at no additional cost, but check with your agent to make sure your policy includes it.
Accidental Death Benefit Rider
If you already have the maximum amount of insurance that you can qualify for this is the rider for you. You can add this rider to your term or permanent life policy and it will pay you an additional death benefit if you die in an accident. It does not pay the selected amount for natural causes.
If you are going to be traveling that is also an excellent time to add this rider. The death benefit payout could be doubled if you are killed while on a common carrier such as a plane, bus, taxi, or train.
Return of Premium Rider
The return of premium rider, available for return of premium life insurance policies, and also on certain long-term care policies, disability insurance, etc., will return all of your premiums paid over the life of your policy should the term come to an end or should you wish to surrender the policy.
Additional Life Insurance Riders for Business Owners
Some of the above mentioned riders are great for individuals, but also for entrepreneurs and business owners who are looking to protect their business, a key person, or for business succession planning.
Transferred of Insured Rider
This rider allows the owner to transfer or exchange the original policy onto the life of someone else. This is a great option for key person life insurance, where the original key employee leaves the company. You can transfer the coverage to the new employee who has now become the key person.