Life insurance riders: excuse me, what’s that?

Sounds kind of fun, a “life insurance rider”, but let’s cut through the jargon. An insurance rider is actually additional coverage, necessary if your circumstances are somehow unusual. Here are some examples of situations where you might like to consider getting “a rider”.

What is a life insurance “rider”?

Life insurance riders, also called options, are various additions to a life insurance policy that change the policy in certain ways. This can result in the policy being able to be cashed out at different times or in different circumstances. Riders allow people to specialize their coverage for their specific insurance needs. Riders usually apply to whole-of-life policies.

What types of riders are there?

Life insurance policies can be tailored extensively but there are some common riders. These include:

• Reduced death benefit: in some circumstances, the value of a policy can be used to purchase a reduced death benefit, meaning the insured person would no longer have to pay premiums on their policy.
• Terminal illness benefit: a policy with a terminal illness benefit can be paid before the insured person dies. If a person suffered from a terminal illness, and death was expected within a specific period of time, the policy can be cashed out when the illness is declared, rather than after death. If after cashing out the policy the patient recovers from the illness, they can keep the money.
• Non-forfeiture provision: Non forfeiture provisions have an option where the policy’s cash value is used to cover the premium if payments on the policy stop being made. This is useful to safeguard against sudden changes in circumstance. If for an unexpected reason, a person can no longer afford to pay the premiums for their life insurance, they would not lose their entire policy. As such, their investment remains mostly intact.

There are many other life insurance riders available, and depends to some extent on the offerings of the company providing the policy. People should ask their insurer for details of any available riders and, if possible, have a policy tailored to best suit your needs.

Unnecessary paperwork

People should always consider whether the rider is necessary for them. The option of including a rider does not necessarily mean everybody needs to take advantage of the opportunity. Riders can often add to the cost of a policy, so adding unnecessary riders make premiums bigger than they need to be. They can also make interpreting your policy harder in the event of death or misadventure, or more open to dissent amongst your loved ones.

That said, for complex estates, riders can help clarify important issues and ensure the policy is accurately applied. Seek professional advice if you are uncertain of the value of a rider for your situation.