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4 Life Insurance Riders You May Not Know About

April 29, 2015
Insurance, Life Insurance
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No life insurance policy is perfect. If you want to make just a few tweaks to yours, consider adding riders. These are extra coverage features you can add to your policy for an additional premium.

You might have already heard about the “return of premium” rider, which pays back your premiums at the end of your term life insurance policy if the death benefit hasn’t been paid. The “waiver of premium” rider is another common option. It pays your premiums if you become disabled and can’t work. However, there are many other riders to choose from, some of which you might not have already considered if you’re buying life insurance.

Term life rider on a whole life insurance policy

There’s no two ways about it: Whole life insurance is expensive. A 35-year-old woman would pay around $312 per month for a $500,000 whole life insurance policy, according to insurance agent group Trusted Choice. If she wants the cash value benefit that comes with whole life but can’t afford a $500,000 policy, she could buy a cheaper $250,000 whole life policy and cover the rest with a term life rider.

This gives you more protection at a lower cost. Before you do this, though, get a term life insurance quote for a separate policy. If you’re young, buying two separate policies could be less expensive than adding the rider.

Disability income rider

If you’re disabled and can’t work, you’ll need help paying more bills than just your life insurance premium. That’s where the disability income rider comes in. It generally pays a percentage of your policy value each month you’re unable to work.

In order to pay out, insurers typically require “total disability.” This can mean different things, such as not being able to perform your own job for two years, or not being able to perform any job. Check your insurer’s definition before signing up.

About 8.8 million American adults draw Social Security disability payments, according to the Social Security Administration, and many financial advisors recommend at least some insurance coverage against disability. But get quotes for separate disability insurance plans and find out whether you receive disability coverage through work before signing up for this rider.

Cost of living rider

If you worry that inflation will erode the value of your insurance policy’s death benefit, so that it won’t be enough for your family, consider the cost of living rider. This coverage directs your insurance company to increase the benefit — sometimes once a year, sometimes every few years — in conjunction with the Consumer Price Index. Keep in mind that your benefit won’t decrease if the CPI declines, and that an increase in the benefit may mean an increase in premiums.

Accidental death benefit rider

“Double Indemnity” isn’t just a movie. It’s also a type of life insurance rider that pays out more money — often twice your original death benefit — if you die in an accident.

Few people should sign up for the accidental death benefit rider, simply because the odds of dying by what your insurer would consider an accident are so small. But if your occupation or hobbies make this more likely — and they don’t make it prohibitively expensive for you to get life insurance in the first place — this may be a good use of your dollars.

The bottom line

All of the best life insurance companies offer a variety of riders. Because riders add extra costs to your policy, you should always consider them carefully, especially if you’re already paying for whole life insurance coverage. There’s no reason to spend money that you don’t have to spend. But if you use them correctly, riders can fill major gaps in your coverage, keeping you and your family safe both during your life and after your death.

Alice Holbrook is a staff writer covering insurance and investing for NerdWallet. Follow her on Twitter @alicenerdwallet and on Google+.

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