Purchasing a life insurance policy is a long-term plan to make sure your loved ones are provided for after you’re gone. Most people assume one life insurance policy is pretty much the same as another. The reality is that there are several riders* that frequently get overlooked which can alter the overall value of the policy. Here is a list of five life insurance riders being overlooked1 and why you should include them in your policy.
Waiver of Premium
The Waiver of premium waiver states that if you become ill or disabled to the point you’re unable to work for six months or more, the insurance company steps in and covers your monthly life insurance premiums. The higher risk profession/hobbies you partake in, the more important this particular life insurance rider becomes.
The good news is that you won’t have a difficult time finding a life insurance policy that includes a Waiver of Premium rider. As of 2010, the American Council of Life2 Insurers reported that 87% of the personal life insurance policies sold in the United States automatically included the rider.
Although each policy is different, in most cases, the Waiver of Premium has a 6 month waiting period attached to it. The insurance company requires that you continue paying your premium during that time, but will reimburse you the payments at the end of the six months.
Guaranteed Purchase Option**
When purchasing life insurance, you shouldn’t ignore the opportunity to include a guaranteed purchase option, especially if you’re a younger adult with an entire life of unexpected possibilities stretching out before you.
A guaranteed purchase option is an understanding between you and the life insurance company you’re working with that if something in your life should change, such as you have a baby, get divorced, get married, or develop a health problem, you’ll be able to purchase additional life insurance and you won’t have to go through the process of proving that you’re healthy when you do so.
A guaranteed purchase option is always a good rider to include, particularly if you’re purchasing life insurance for a young child3.
Spouse or Child Term Riders
When you only have to worry about purchasing life insurance for yourself, an individual policy generally doesn’t cost much, especially when you’re young and healthy at the time of purchase. However, if you’re responsible for purchasing a completely separate life insurance policy for your spouse and multiple children, the cost can quickly add up.
Instead of purchasing a separate life insurance policy for each member of your family, you may want to talk to your insurance agent about purchasing a spouse of child term rider instead. This rider is designed to add family members to your policy for a reduced rate. The best thing about this particular rider is that it provides them with a way to have life insurance that doesn’t require them to prove they’re in good health. Something that’s particularly important for children diagnosed with lifelong disabilities.
Long-term care riders
One of the biggest hesitations people have when it comes to purchasing life insurance is that they’re worried about the amount of money they’ll ultimately spend paying premiums for something that might not benefit them. Most justify the cost because they know the payout will benefit their loved ones.
For others, a long-term care rider helps justify the cost of the life insurance policy. This policy rider is set up so that a specific amount of money goes to long-term medical care the policy holder requires if they start suffering debilitating health problems that prevent them from caring for themselves.
Each insurance policy differs, but most write the long-term care policy so that if the policy holder requires long-term care, a set annual amount goes towards their care for a pre-determined number of years. If the rider never gets used, the amount that would have gone towards long-term care is passed on to the policy holder’s beneficiaries.
Cash Withdrawals and Loans***
It’s not unusual for someone to run into a problem that requires more money than they have on hand. Having a life insurance policy that allows you to make cash withdrawals and loans helps you out of financial binds. The nice thing about taking a loan from your life insurance policy is that it generally doesn’t take long for the transaction to process and the interest rates are quite low. For your name beneficiaries to get the full death benefit from your life insurance policy, the cash withdrawals and loans need to be repaid.
Accelerated Death Benefit
Learning you have a terminal disease is a huge blow. Having a life insurance policy with an accelerated death benefit could make things easier for you and your family. You’re free to use the benefit to help cover the cost of your medical treatments and living expenses, which in turn allows you to continue to enjoy a high quality of life for whatever time you have left.
The cost of these five life insurance riders is minimal when compared to the long-term benefits. Talk to your dedicated IFN insurance specialist today for detailed information about how each one works. You’ll be glad you did! 800.921.3100.
* The riders mentioned may be available at an additional cost and may differ depending on the state of issuance and may not be available in all states.
** Guarantees are backed by the financial strength and claims paying ability of the issuing company.
*** Loans will reduce your cash value benefit and death benefit and may be subject to surrender charges. Unpaid loans are subject to ordinary income tax and, if taken before age 59 1/2, may result in a federal tax penalty.
Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and you should consult a tax professional. Policy loans are not usually subject to income tax unless the policy is classified as a modified endowment contract or MEC, under IRC section 7702A. However, withdrawals or partial surrenders are subject to income tax to the extent that the cash value in the policy immediately