A term specific to the the life insurance market is that of a “rider”. The term is thrown around quite a bit online and usually the “rider” comes with high praises (from those selling it) but we have a different view. Let’s look a little closer at the “rider” and why a term life insurance shopper should probably hop off that bus!
First, what is a rider? A rider is essentially an add-on benefit or option to a core life insurance policy. It typically costs extra premium and allows some flexibility, addition, or change to the core coverage during the life of the policy. The closest analogy both in function and form is the insurance you might get on a rental car. For most people, this coverage is redundant and an additional expense due to their existing car insurance or benefits through plans such as AAA. It’s insurance on top of insurance. Riders can be the same. They tend to insure your insurance essentially but at a price and in our view, it’s better to put that life insurance premium dollar towards core benefit instead of the very profitable (to the carriers) add-ons that the carrier offers. It takes advantage of the fact that for many people, they do not discern the probability of risk and feel uncomfortable saying no to a risk if it’s specifically broken out no matter how rare. In life, you can’t insure against every possible risk…it would cost too much. Let’s look at some of the usual suspects for commonly offered term life riders.
Guaranteed Insurability Rider.
This essentially allows you to add additional term life coverage to existing core amount without going through life insurance underwriting (i.e. qualifying based on health). This rider is purported to address changes in needs later in life. Due to the cost of waiting and the value of buying as much life insurance as can be afforded at an earlier age, it probably makes sense to put that premium amount into more core coverage.
Accidental Death Benefit.
This rider essentially adds an amount of insurance to be paid out in case the insured dies as a result of injury. It’s akin to a roulette wheel where people are putting chips on different colors (number 5 is going to hit) as a guessing game to how death might occur. Death is obviously a traumatic occurrence (hence the need for life insurance anyway) so the cause is probably not so much the issue as the resulting financial protection of your loved ones.
Waiver of Premium rider.
This rider allows the policy to stay in force without the payment of premium if the insured becomes totally disabled (according to the differing definitions of the carriers). One of the key benefits of term life insurance is that the premium amount is so low relative to other types of life insurance such as whole. This is really a built-in protection against lapse of premium. Paying $40/month becomes less burdensome than say $300 monthly for whole life.
Accelerated Death Benefit Rider.
This rider allows the insured to receive a percentage of the total term life amount if he/she is diagnosed with a life shortening disease (again, according to the carrier’s list and requirements). There’s an entire market out there now called viaticle settlements which address receiving money (for the recipients usually) in this case.
These are a few of the most common riders available on the market but it’s definitely not the complete list. Riders have sprung out in many different forms as they are a great source of revenue to the life carriers. We’re not here to talk you out of a given rider…if one speaks to you then by all means, you are free to opt as you like but we feel it’s important to give you the full picture in order to make a good decision when purchasing term life insurance.