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Demystifying Term Life Riders

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What You Need to Know

  • Of course, life agents already talk about all of this.
  • If you come at this from another angle, you might not.
  • In a crisis, riders could do important things for your clients.

Term life insurance is often viewed as an overly complex product.

In fact, when ReMark surveyed 12,807 consumers around the world about a variety of life and health insurance products, it found that term life insurance was the least understood product.

Let’s break down one of the elements of term life insurance that clients have traditionally viewed as especially confusing: policy riders.

What Is a Rider Anyway?

Most clients should understand the basic concept of term life insurance: You buy coverage for a specific amount of time (or term length).

If a policyholder dies during the policy’s term, their beneficiary receives a lump-sum death benefit payment.

Simple enough.

But, while many improvements have been made to streamline how life insurance can be bought, many clients are still unclear about the various associated rider options.

Some clients believe the term “rider” refers to policy exclusions or caveats.

However, of course, in many cases, life insurance riders actually work in the policyholder’s favor.

To clarify things for clients, it’s important that advisors remind them that, generally speaking, a life insurance rider is a feature that is in addition to the life insurance policy.

In other words, riders can help applicants get the customized and personalized coverage they need.

Common, but Confusing, Riders

Once clients understand the concept of a rider, it can be easier for them to sift through the various rider options to see which, if any, might make sense for them.

While each insurer is going to have their own rider offerings and policies, some of the more common riders a client should expect to see include the following:

Accelerated Death Benefit

This type of rider has multiple names, and might be referred to as a living benefit rider or terminal illness benefit rider.

But, regardless of what it’s called, the overarching concept is the same.

This rider is a provision attached to a life insurance policy that allows the policyholder (a client) to access a portion of the life insurance death benefit while they are still living.

The caveat here is that this usually requires a policyholder to have a documented life expectancy of two years or less–hence the name “terminal illness benefit rider.” Additionally, how much of the death benefit a policyholder is able to access varies from policy to policy.

How could this rider benefit clients? As corresponding medical care or end-of-life care for a terminal illness can be costly, accessing a portion of a policyholder’s death benefit could help cover some of those expenses.

It can also help a policyholder settle affairs, so as not to financially burden loved ones when they pass–a primary reason people often buy term life insurance in the first place.

Accidental Death Rider

While the death of a client as a result of an accident would generally be covered under the terms of a life insurance policy, an accidental death rider is an additive option.

In addition to the policy’s normal death benefit payout, via this rider, a client’s beneficiaries would receive an additional lump sum payment if a client dies in an accident.

While the benefit of a larger cash payout may be helpful for some clients–especially as an accident implies an unexpected or untimely death, not all accidents are covered.

It’s therefore important that clients check with their insurer about the terms and conditions of this rider, and ask explicitly what type of accidents are covered.

Disability Waiver of Premium

The name of this rider does a good job of explaining what it entails.

Essentially, the inclusion of a disability waiver of premium in a life insurance policy means that if a policyholder becomes totally disabled (in accordance with the terms set out in the policy itself), the insurer will waive subsequent premiums until the policyholder is no longer disabled.

If it is a lifetime disability, premium payments will be covered until a certain age.

The benefit of this rider to clients is that, in the event of a catastrophic disability, it prevents their policy from lapsing.

However, it is important for clients to read the fine print on this type of rider as there is often a six-month waiting period before a client can have their premiums waived, is usually only available for an additional fee, and there could be age or state availability limitations.

Disability Income Insurance Rider

Should a client become disabled and unable to work, those who elect this rider would be paid a monthly stipend by their life insurance company to replace a portion of their income.

Similar to the disability waiver of premium, in the event of a disability, premiums for the life insurance coverage could be waived.

Ultimately, some clients might be better served by purchasing a standalone disability insurance product.

However, for clients that might not have access to a disability policy, this waiver could be a good option.

Too often, clients face analysis paralysis when presented with too many options.

Wade SewardWade Seward is head of distribution strategy at Haven Life.


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