For this story about riders, I decided to do a mini-survey of a few very large national insurers. The results were fascinating.
Each responding company has its own family of riders, meaning the survey represents a vast profusion of riders. Today, well look at some of them, and also at what my survey found is the most popular grouping of riders, or “packages,” in todays market.
Heres a recap, organized by base policy class:
Traditional permanent and term life insurance: The most popular riders here are disability waiver of premium, accidental death, and spouse/child coverage. Decreasing term and level term are also popular, as are premium waivers on juvenile business and guaranteed purchase options. (GPOs providing long-term care insurance is a new wrinkle.)
More novel riders include inflation upgrades, critical-illness-type accelerated benefits, and terminal-illness-type accelerated benefits. There is even a disability income rider.
Universal life insurance: Waiver, accidental death, spouse/child, and GPO again head the list. The term riders are not as popular. For second-to-die UL, there are riders for policy split and for various estate protection purposes.
Variable Life: Here again, waiver, accidental death, spouse/child, and GPO head the list. Term riders are not popular. DI is mentioned.
Annuities: Waiver-of-premium riders are mentioned. Also, there are numerous popular riders based on the death or critical illness of the contract holder prior to annuitization. On fixed and variable annuities, these riders waive surrender charges. On VAs, these riders can enhance earnings on the contract, and even pay special benefits in the event of critical illness. (Maybe CI insurance is more alive than some people think!)
These days, VAs also have various guaranteed minimum death benefit arrangements, and even guaranteed minimum annuity benefits (regardless of performance of the underlying assets). These features, sometimes expressed as options, are typically embedded in the base policy wording and are therefore not riders (strictly speaking).
Long-term care policies: Half the companies in the survey did not sell long-term care insurance. The half that did had elaborate riders designed to improve the attractiveness of the product, especially to middle-aged or younger buyers. Inflation indexing is a popular rider, as are premium waiver, home care benefits, and benefits for surviving spouse. Some pay cash benefits for informal care.
An interesting LTC rider provides nonforfeiture benefits! (Nursing home benefits tend to be very far deferred; as a result, early nonforfeiture benefits can be substantial, and can improve the attractiveness of the product for younger buyers.)
DI policies: The few respondents that sell DI insurance offer riders such as cost-of-living and catastrophic (critical illness-type). A most interesting rider effectively converts the policy to LTC insurance after age 65!
Of the entire group, guess which rider was rated most popular overall? Waiver of premium. And the second most popular? Spouse/child.
One other group of riders also made the popularity list. These are the VA riders that enhance the death benefits.
As for how the riders tend to be groupedor “packaged,” as modern terminology puts itthe survey found the most popular package is traditional life with spouse/child riders. These are being marketed as family plans for the young professional market, and at sometimes substantial face amounts. This was very heartening to me. I remember the enormous marketing hit caused in the baby boom years by The Family Policy! Maybe the boomers are causing a second boomand a traditional one at that!
From the above, one can safely conclude that riders are here to stay. Indeed, judging by their proliferation and wide variation, they would seem to be especially important in todays market.
What is the reason for that? In several traditional product lines, the insurance industry is in a sales doldrum. Its been in the doldrums beforeand the so-called “traditional” products have always come to the rescue. So, my guess is todays insurers are looking at refreshing their traditional productsto dress them up to the max, as it wereto give them contemporary sizzle. Thats what riders are all about.
John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at John M. Bragg and Associates, Atlanta; past president of the Society of Actuaries; and past CEO of Life Insurance Company of Georgia.You can e-mail him at email@example.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.