Common Policy Riders
Riders (also called endorsements) are optional provisions that can be added to a life insurance policy to customize coverage. Most riders require an additional premium.
Waiver of Premium Rider
The waiver of premium rider waives premium payments if the insured becomes totally disabled.
How It Works
| Feature | Description |
|---|---|
| Trigger | Total disability (as defined in rider) |
| Effect | Premiums waived during disability |
| Policy status | Remains fully in force |
| Cash value | Continues to grow as if premiums paid |
Key Terms
| Term | Typical Definition |
|---|---|
| Waiting period | 3-6 months before waiver begins |
| Retroactive | Premiums from onset may be refunded |
| Definition of disability | Unable to perform own occupation (early); any occupation (later) |
| Age limit | Coverage often ends at age 60 or 65 |
Example
- Insured becomes totally disabled
- After 6-month waiting period, premiums waived
- Premiums from disability onset refunded
- Policy stays in force as long as disability continues
Exam Tip: Waiver of premium is one of the most valuable riders because it protects the policy from lapse when the insured cannot work.
Accidental Death Benefit (ADB) Rider
The accidental death benefit rider (also called double or triple indemnity) pays an additional death benefit if death results from an accident.
How It Works
| Feature | Description |
|---|---|
| Trigger | Death from accidental means |
| Benefit | Additional amount (often equals face amount) |
| Total payout | Base death benefit + ADB |
| Common names | Double indemnity (2x), triple indemnity (3x) |
Definition of Accidental Death
| Requirement | Explanation |
|---|---|
| Accidental means | External, violent, and visible cause |
| Within time limit | Death within 90-180 days of accident |
| Direct cause | Accident must be direct cause of death |
Exclusions (ADB typically NOT paid for)
| Exclusion | Example |
|---|---|
| Illness | Heart attack while driving |
| Suicide | Self-inflicted death |
| Drug overdose | Unless accidental |
| War/military action | Combat-related death |
| Dangerous activities | Racing, skydiving |
Example
| Item | Amount |
|---|---|
| Face amount | $500,000 |
| ADB rider | $500,000 |
| If death from illness | $500,000 |
| If death from accident | $1,000,000 |
Guaranteed Insurability Rider (GIO)
The guaranteed insurability rider (also called guaranteed insurability option or GIO) allows the policy owner to purchase additional coverage without evidence of insurability.
How It Works
| Feature | Description |
|---|---|
| Option dates | Specific ages (e.g., 25, 28, 31, 34, 37, 40) |
| Also at events | Marriage, birth of child |
| Amount | Up to specified limit |
| No underwriting | Regardless of health changes |
Key Terms
| Term | Description |
|---|---|
| Option dates | Specific times when coverage can be purchased |
| Maximum per option | Limit on amount purchasable each time |
| Expiration | Rider typically expires at age 40-45 |
| Exercise period | Must exercise within specified time |
Value
This rider is valuable because:
- Health may decline making coverage unavailable
- Allows starting with lower coverage when young
- Can increase as income and family grow
- "Locks in" insurability while healthy
Cost of Living Adjustment (COLA) Rider
The COLA rider automatically increases the death benefit to keep pace with inflation.
How It Works
| Feature | Description |
|---|---|
| Trigger | Annual inflation index (often CPI) |
| Effect | Death benefit increases |
| Premium | Also increases proportionally |
| Limit | May have maximum increase cap |
Options
Some COLA riders allow the policy owner to:
- Decline the increase (but may lose future increases)
- Accept the increase with higher premium
- Have automatic increases without evidence of insurability
Child Term Rider
The child term rider provides term life insurance coverage on the insured's children.
How It Works
| Feature | Description |
|---|---|
| Coverage | All children (current and future) |
| Type | Term insurance |
| Amount | Typically $5,000-$25,000 per child |
| Age range | Usually 15 days to age 18-25 |
| Premium | Single flat premium covers all children |
Conversion Feature
| Feature | Description |
|---|---|
| Conversion right | Child can convert to permanent insurance |
| Amount | Up to 5x the term amount |
| No underwriting | Regardless of health |
| Timing | Usually at age 21-25 |
Spouse Term Rider
The spouse term rider provides term life insurance on the insured's spouse.
Features
| Feature | Description |
|---|---|
| Coverage | Term insurance on spouse |
| Amount | Typically $10,000-$50,000+ |
| Duration | Until specified age or base policy ends |
| Conversion | May be convertible to permanent |
Payor Benefit Rider
The payor benefit rider waives premiums if the person paying premiums (not the insured) dies or becomes disabled.
Common Use
- Parent pays premiums on child's policy
- If parent dies or becomes disabled, premiums waived
- Child's coverage continues
How It Works
| Feature | Description |
|---|---|
| Payor | Person paying premiums (not insured) |
| Trigger | Payor's death or disability |
| Effect | Premiums waived until insured reaches specified age |
Return of Premium Rider
The return of premium rider returns all or part of premiums paid if the insured survives the policy term.
Features
| Feature | Description |
|---|---|
| Trigger | Survival to end of term |
| Return | All premiums paid returned |
| Cost | Significantly higher premium |
| Death during term | Normal death benefit paid |
Considerations
- Much higher cost than standard term
- Essentially forced savings
- No interest on returned premiums
- May be better to invest premium difference elsewhere
Summary of Common Riders
| Rider | Benefit |
|---|---|
| Waiver of premium | Waives premiums during total disability |
| Accidental death | Pays additional benefit for accidental death |
| Guaranteed insurability | Buy more coverage without medical exam |
| COLA | Automatic inflation increases |
| Child term | Coverage on children |
| Spouse term | Coverage on spouse |
| Payor benefit | Waives premiums if payor dies/disabled |
| Return of premium | Returns premiums if insured survives term |
Key Takeaways
- Riders customize policies to meet individual needs
- Waiver of premium protects the policy if insured becomes disabled
- ADB pays additional benefit (often 2x) for accidental death
- Guaranteed insurability allows future purchases without underwriting
- COLA increases coverage with inflation
- Child and spouse riders provide family coverage on one policy
- Payor benefit protects children's policies if parent dies
- Most riders require additional premium
The waiver of premium rider:
The accidental death benefit rider typically pays:
The guaranteed insurability rider allows the policy owner to:
A child term rider provides: