Foretell The Insurance Future By
By Douglas I. Friedman
You can foretell the insurance future by keeping track of new riders. The ideas presented in riders may become so popular that they are eventually added to the basic policy form, no longer relegated to an add-on.
So it is with the accelerated benefits rider. Developed to meet the need of terminally ill individuals, who need money during their lives, not at death, this rider has now been added free of charge to many existing policies as a standard policy provision.
The accelerated benefits rider shows an important role of riders in todays market: the insurance industry uses them to address new concerns of society.
But riders can also be used to correct errors, provide expanded benefits, address changes in tax laws, etc., after the policy has been issued. They do this by providing a simple method for making adjustments.
The so-called “tax law” rider is an example of that. When the motivation for a purchase may be taxes, if the tax law changes, the rationale for the purchase may also change; indeed, it may end. A rider can provide the client with alternatives, so that the policy is an attractive purchase, even if the tax law were to change.
Consider: Last survivor policies are often purchased for estate tax reasons. If the estate tax is repealed, there may be no need for death proceeds at the second death. But a “tax law” rider may permit the policy to be changed into a single life policy under certain circumstances. In that case, the rider may be added to all last survivor policies a company issues. The rider thus addresses a non-insurance need, thereby enabling the sale to be made.
Such adjustments may not always be global in nature, such as a change in the tax laws. Sometimes the adjustment is needed for a personal reason.
What if, for example, the insureds under a last survivor policy were to divorce? Again, the underlying rationale for the policy probably ends with the divorce. A rider in that case may permit the policy to be split into two individual policies. A rider for that possibility is now commonplace and may be added routinely to all of an insurers policies.