In this blog post I’ll discuss the most common term life insurance riders that are typically available with most term life insurance companies. I’ll cover whether the rider is usually included in the policy or has an additional fee, I’ll provide some examples of pricing for these term riders, and provide insight into when you might want to consider adding a rider to a policy. If you would like to compare life insurance rates you can use our quote tool right below this paragraph, otherwise keep reading for more on term life insurance riders.
There are typically a couple of life insurance policy riders that are included with term life insurance policies without additional costs. Let’s cover those first.
Life insurance is meant to provide a sum of money to your loved ones in the event of your death. It can replace your income, pay off a mortgage, pay your student loans,business debt or estate taxes, or just provide extra cash to your family. But what happens if you become terminally ill, and it’s you who needs money for medical bills, or other expenses, especially if you can’t work.
This is the primary reason life insurance companies introduced the Accelerated death benefit rider. This rider, which is typically included in term life policies allows you to access a portion of your death benefit if you become terminally ill. As an example, with Transamerica you qualify for accessing the rider if a physician determines you have less than 12 months to live. Transamerica allows you to access up to 75% of the death benefit up to a maximum of $250,000.
Every company’s guidelines are a bit different - for example while Transamerica allows access up to 75% of the death benefit up to $250,000, American General allows 50% access up to $250,000. If having maximum access to as much money as possible in case of Terminal illness is important to you, we can discuss various companies’ specific Accelerated Death Benefit Rider (also known as Terminal Illness Rider) policies with you when we help you compare term life rates and apply for coverage.
Another rider that many term life insurance policies have is a term conversion option. With this rider, which is also included at no additional cost, you have the right to convert your term policy to a permanent life insurance policy within a specific time period. For example, Protective Life Insurance allows you to convert a term policy to a Universal Life policy within the first 20 years of the policy or up to age 70, whichever comes first.
With American General you can convert your policy from term to universal during the life of the policy up to age 70. Each life insurance company has different rules regardng converting from term to universal or whole life, and when you are eligible to convert. When you speak to us we can discuss specific company policies with you.
Having a term conversion option is advantageous because you can convert the term policy without a new medical exam and your rate is determined based on the health rating you got when you purchased the term life policy. That means that if you have a term policy and your health deteriorates, you may want to convert the policy so that it doesn’t expire and your options are then limited at that point.
A child insurance benefit rider allows you to add life insurance for your child. Typically children between 15 days and 18 years old are eligible to be added to your policy, and coverage on your child expires between ages 21-25 depending on the life insurance company you choose. Term Life insurance companies that offer this rider allow anywhere between $1,000 to around $25,000 of coverage per child. Although no parent wants to go through the burden of laying their child to rest, coverage is inexpensive and if you have young children and not much in savings to cover those costs, this rider can help with final expense benefits should the unexpected happen.
When you purchase a traditional life insurance policy, the death benefit covers you for “any cause”. This means that whether you die from natural causes, disease,accident, or injury - you are covered, and your beneficiaries are eligible to receive a death benefit. An accidental death benefit rider allows you to increase the death benefit on your policy in case you die as a result of an accident or injury (typically you must die within 90 days of the accident or injury to qualify). You can generally double your coverage in case of accident with this rider up to an additional $250,000-$500,000 depending on the life insurance company. For example Protective Life and American General allow a maximum additional accidental death benefit of $250,000, while ING and Transamerica allow $300,000 in additional coverage. Prudential allows up to $500,000 in accidental death benefit coverage.
A waiver of premium rider would protect you in case you got disabled. If you have this rider, the life insurance company would continue to pay your policy premiums for you as long as you are disabled. This is a rider that you need to qualify for - which would depend on your health and occupation. My recommendation is that if you buy a policy that is cheap and you know you will be able to afford the premium under any circumstance, you don’t need to pay an additional fee and have this rider. However if you are buying a more substantial policy that has a premium that you will only be able to afford if you are earning the income you are used to, you may want to consider this option. We can price a waiver of premium rider for you and see if this is a rider that makes sense.
The most “expensive” term life insurance rider is the return of premium rider. With this rider, if you outlive the term of your policy, you get back all the premiums you paid. For example, if you buy a 20 year term life policy and you live past the 20 years, you will get back all premiums paid. While this sounds great, having this rider will significantly increase the cost of your term policy. Let’s take a look at an example and see if this rider makes sense for you. Let’s take a 40 year old and break down the numbers.
If a 40 year old buys a $250,000 20 year term policy with Return of Premium, here is the cost: The policy would cost $884 per year. At the end of 20 years you would get back $17,680. Without the return of premium rider, the same Prudential policy would cost $300 per year - which means you are paying an additional $584 per year for this rider. If you invested the $584 each year, at a rate of 4% per year over 20 years, you would net $17,390 - about the same as the return of premium on the life insurance policy. Any return over 4% and you would end up getting a better return investing the money on your own as opposed to buying the rider.
Remember that to qualify for the return of your premium, you need to keep the policy in force the full 20 years, which for one reason or another, not everyone does. The bottom line is that if you find that you aren’t disciplined enough or knowledgeable enough to invest the money on your own, this rider could be beneficial - otherwise I’d recommend saving the money on your own as you could probably get a better return on your own.
Now that we have covered the top term life insurance riders, let’s discuss what they cost. We’ve already established that the accelerated death benefit and the term conversion option are free. Let’s cover the riders that cost money. We’ll use our 40 year old male, applying for a 20 year $250,000 term life insurance policy. We’ve discussed the return of premium rider, so here I’ll cover the child rider, accidental death benefit, and waiver of premium rider.
At Preferred Plus Non Tobacco rates the annual cost of this policy would be about $200 per year, depending on the carrier. The additional cost of the $10,000 child rider is about $50 per year.
For the waiver of premium rider, we’ll continue to use our 40 year old male at $250,000 policy. The best price for this rider is with SBLI at a cost of $27.50 annually.
For a $250,000 policy for a 40 year old male, an Accidental Death Benefit rider for an additional $250,000 of coverage in case of accident (for a total of $500,000) would cost between $150-$250 depending on which life insurance company you choose. In the case of our 40 year old male, Protective Life has the best overall price at an Annual cost of $450, which includes this rider.