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What is a rider on a life insurance policy?

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Buying life insurance can be overwhelming, presenting many questions. Should you buy a term or permanent policy? How much life insurance is enough? How many beneficiaries should you have? Besides these questions, there are a variety of add-on options to consider, such as life insurance with long term care rider, child rider life insurance and disability rider on life insurance. 

In this article, we’ll explore everything you need to know about a rider attached to a life insurance policy, as well as whether you should add any to your standard policy.

What is a rider on a life insurance policy?

A rider on a life insurance policy is an optional add-on that allows you to customize your standard life insurance for a small additional cost. There are two generic categories of riders: living benefit and death benefit riders. The main difference is who can take advantage of them. 

A living benefit means you can use some of the money you’ve designated for your beneficiaries after you die for your needs while you’re still alive. Death benefit riders are exclusively intended to help your beneficiaries after you pass.

Types of life insurance riders

Below you can take a closer look at the ten most common types of life insurance riders and why you would want to add them.

Accelerated death benefit

An accelerated death benefit lets you receive up to 80% of the funds designated to beneficiaries if you’re terminally ill and have less than twelve months to live. The money is intended to help you pay medical and hospice care and is deducted from what your beneficiaries would receive. If you draw $100,000 of a $500,000 policy for example, your beneficiaries will inherit the remaining $400,000.

Accidental death

The accidental death rider pays out twice the death benefit if you’re killed in an accident. It may be a good idea for people at a high-risk job, but it is typically fairly expensive to purchase.

Child term 

If your child passes away, you’ll receive a death benefit to help pay for expenses such as funeral costs. The rider can be converted to a permanent life insurance policy without a medical exam once the child turns 25, which could be beneficial for children who develop a chronic disease and would otherwise not be insurable otherwise.

Critical illness

The critical illness rider pays you a lump sum which can be used for medical treatment if you’re diagnosed with or suffer from a life-threatening condition, such as cancer, kidney failure or heart disease. The amount will be deducted from the death benefit your beneficiaries would receive.

Disability income

If you’re unable to work due to a qualifying disability, you could receive a percentage of the death benefit each month if you add the disability income rider to your life insurance policy.

Family income benefit rider

This rider provides a monthly payment to your loved ones in addition to the lump-sum death benefit. The monthly amount matches your income while you’re alive. If you are your family’s sole financial provider, the family income benefit rider could replace the income you brought in every month.

Guaranteed insurability rider

Applicable to permanent/whole life policies and not for term insurance, you could increase your coverage without an additional medical examination if you added the guaranteed insurability rider. This is a good option for newly married couples who may want to increase their death benefit after a few years when they start having kids. 

Life insurance with LTC rider

The long-term care (LTC) rider is available with some permanent policies. With this rider, you are able to deduct funds from the death benefit to pay for assistance with daily living tasks, such as bathing, dressing and eating. Is a long-term care rider on life insurance a good deal? Considering the high cost of long-term care, a rider is definitely a viable means of covering the expense.

Term conversion

When you opt for term conversion, you can switch out your term life insurance (active only for a certain time) into a permanent policy without the need for a medical exam.

Waiver of premium

If you become unemployed or disabled and can’t work, the waiver of premium allows you to put off your premium payments for a set period of time while you get back on your feet without risking loss of payout.

Common life insurance riders

Accelerated death benefitReceive a portion of the death benefit to help pay for medical or hospice care if you’re terminally ill and have less than six or 12 months to live.
Accidental deathPays out twice the death benefit if you pass away from an accident.
Child termReceive a death benefit if your child passes away.
Critical illnessPays you a lump sum for medical treatment if you’re diagnosed with a life-threatening condition.
Disability incomeReceive a percentage of the death benefit each month if you become disabled and can’t work.
Family income benefit riderProvides a monthly payment to your beneficiaries in addition to the lump-sum death benefit.
Guaranteed insurability riderIncrease your coverage without an additional medical examination. 
Long-term carePay for long-term care using some of the money allocated for the death benefit.
Term conversionConvert your term life insurance into a permanent policy without a medical exam.
Waiver of premiumWaive your premiums while you’re unemployed or disabled.

Are life insurance riders worth it?

Life insurance riders vary in cost. Some are included in a standard life insurance policy, so it’s worth comparison shopping life insurers. In some cases, a rider can be replaced with alternative insurance coverage, saving you money. For example, the waiver-of-premium rider may not be necessary if you already have disability insurance through your employer.

A long-term care rider is less expensive to pay for than actual long-term care and may be worth the added cost. But the accidental death rider may not be worth it because of its potentially high cost. Fortunately, many employers may pay the coverage for employees in high-risk jobs.

The takeaway

  • An insurance rider adds features to a basic life insurance policy.
  • The riders could benefit you as the policy owner or the beneficiaries if you die.
  • Some riders provide you with living benefits, meaning you can withdraw money from the death benefit amount before you die.
  • A rider may or may not be worth the extra expense and should be evaluated carefully.
  • If there’s a rider you’re interested in, shop around for life insurance quotes — some insurers include specific riders for free.

Every person’s life situation is unique and your life insurance policy should reflect that. Life insurance riders let you customize your policy to benefit you and/or your beneficiaries. It’s important to understand the ins and outs of each life insurance rider to decide on whether the value is worth the cost. 

Some of the riders provide a living benefit, meaning you can draw on the death benefit amount before you die. Keep in mind, however, that any money you withdraw reduces the death benefit you had planned to leave to your loved ones. Consider increasing the amount of your policy to provide funding for yourself and your beneficiaries if you plan on adding living benefit riders.

Cynthia Paez Bowman

Writer

Cynthia splits her time between Los Angeles, CA and San Sebastian, Spain. She travels to Africa and the Middle East regularly to consult with women’s NGOs about small business development.

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