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D. Policy Riders

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Key Takeaways
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Educational Objective
  • III.1. Be able to identify which of an applicant's needs may be fulfilled by each of the following policy riders or clauses: disability income; waiver of premium or waiver of monthly deduction in universal life policies; accidental death; cost of living; accelerated death benefits (living needs rider, terminal illness rider, and/or critical illness rider); guaranteed insurability; long-term care; no-lapse guarantees (universal life policies); and guaranteed minimum income and guaranteed minimum withdrawal riders in life and annuity contracts.

1. Disability Income Rider

With a disability income rider attached, the insurer both waives the policy premiums and pays the insured a monthly income if the insured becomes disabled. That monthly benefit is usually calculated as a percentage of the policy's face amount.

2. Waiver of Premium and Waiver of Monthly Deduction

The waiver of premium rider keeps a policy's premiums from being charged once the insured becomes totally disabled, and coverage stays in force for as long as the insured remains unable to return to work. Most insurers impose a 6-month waiting period measured from the onset of disability before the first premium is actually waived; if the insured is still disabled once that waiting period ends, the insurer refunds whatever premium the insured paid during the waiting period. This rider typically expires once the insured reaches age 65.

Know This

The waiver of premium rider waives premiums for a total disability, but only after a waiting period has passed.

Universal life policies use an equivalent rider called waiver of cost of insurance (or waiver of monthly deductions). If the insured becomes disabled, this rider waives the cost of insurance and other policy charges, but it does not waive the portion of premium the policyowner is voluntarily contributing toward cash value accumulation.

3. Accidental Death and Dismemberment

An accidental death rider pays an additional multiple of the policy's face amount if the insured's death qualifies as accidental under the terms of the policy — the death generally must occur within 90 days of the accident. The added benefit is most often twice the face amount (double indemnity), though some policies pay three times the face amount (triple indemnity).

Every policy defines what counts as an accidental death for its own purposes; death connected to a preexisting health condition or disability is not considered accidental, and neither is death from self-inflicted injury, war, or hazardous hobbies. This rider typically expires at the insured's age 65, and it never generates any cash value of its own; it also applies only against the policy's base face amount, not against additional coverage purchased using policy dividends.

An accidental death and dismemberment (AD&D) rider pays the full face amount — the principal sum — for an accidental death, exactly as the accidental death rider does, but also pays a percentage of that amount, called the capital sum, for an accidental dismemberment. How much is paid for a dismemberment depends on the severity of the injury: the full principal sum is typically paid for the loss of both hands, both arms, both legs, or sight in both eyes, while a capital sum — usually capped at half the face amount — is paid for the loss of a single hand, arm, leg, or eye. Insurers vary in how they define "loss": some require actual severance of the limb, while others require only the loss of its use.

4. Cost of Living Rider

The cost of living rider addresses inflation by automatically increasing a policy's face amount, without requiring the insured to prove insurability, whenever a chosen inflation index — commonly the Consumer Price Index (CPI) — rises.

5. Accelerated Death Benefits

An accelerated benefit (also called a living needs rider) lets the insured collect part of the policy's death benefit early if diagnosed with a terminal illness expected to result in death within 2 years, or upon certain other qualifying conditions; it does not cover disability. The purpose is to make funds available for the medical and nursing expenses a terminal diagnosis often brings. Many insurers add this rider free of charge, since it is simply an early payment of a benefit the policy already promises — whatever portion of the benefit is not accelerated remains payable to the beneficiary at the insured's death.

Under California law, once the insurer approves a request for an accelerated death benefit, the amount is fixed at that time. The insured may then choose to take the accelerated benefit as a single lump sum, or in periodic payments over a defined period (CIC 10295.1).

6. No-Lapse Guarantee Rider

A no-lapse guarantee rider, typically available on universal life policies, keeps a policy from lapsing even if its cash surrender value would otherwise be too low to cover the policy's monthly charges. The tradeoff is reduced flexibility in how premiums may be paid, in exchange for eliminating the risk that the policy unexpectedly lapses.

7. Guaranteed Insurability Rider

A guaranteed insurability rider lets the insured purchase additional coverage at specified future dates (commonly every 3 years) or upon specified life events, such as marriage or the birth of a child, without needing to prove insurability. Any additional coverage purchased under this rider is priced at the insured's attained age at the time it is exercised. This rider usually expires once the insured reaches age 40, and the existence of other riders on the policy does not modify or defeat it.

Example: Guaranteed Insurability

Priya's life insurance policy includes both a guaranteed insurability rider and a waiver of premium rider. Two years after the policy was issued, Priya becomes totally and permanently disabled. Her premiums are waived under the waiver of premium rider, and — because the guaranteed insurability rider is unaffected by her disability — Priya may still purchase additional coverage at the specified future dates or events named in her policy, with the premiums for those increases waived as well.

8. Long-Term Care Rider

A long-term care (LTC) rider, like standalone LTC coverage, pays part of the death benefit early — again called an accelerated benefit — to help cover the insured's health care costs in a nursing home or convalescent facility. As with the living needs rider, any benefit paid under an LTC rider reduces what remains payable to the beneficiary at death.

Benefits under an LTC policy or rider are usually triggered when the insured becomes unable to perform a set number of activities of daily living (ADLs) — bathing, dressing, toileting, transferring (mobility), continence, and eating — regardless of what caused the impairment. Once the insured has satisfied the policy's elimination period, benefits begin to be paid.

State Requirements for Insurers and Agents

California law requires every insurer offering long-term care coverage to establish marketing procedures designed to prevent unfair comparisons between competing policies and to prevent agents from selling excessive amounts of coverage. Insurers must also submit to the Commissioner a list of every agent authorized to sell long-term care insurance, and that list must be updated at least semiannually.

Insurers are responsible for making sure their agents complete initial training before being authorized to sell individual long-term care insurance. That training must cover topics such as state regulations, the types of long-term care services and facilities available, recent developments in long-term care insurance, and alternatives to purchasing private LTC coverage.

Every agent authorized to sell long-term care insurance must also satisfy ongoing training requirements: 8 hours of long-term care training annually for each of the first 4 years after the agent's original license is issued, and 8 hours of training during every 2-year license term after that. This training counts toward — rather than adding to — the agent's overall continuing education requirement. Long-term care training is not required for an agent who only sells accelerated death benefit provisions or riders that do not involve LTC services.

9. Annuity Riders: Guaranteed Minimum Income and Withdrawal

Certain riders let annuity owners obtain benefits beyond what their original annuity contract provides. Two of the more common riders available on variable annuities are:

  • Guaranteed Lifetime Withdrawal Benefit (GLWB) — guarantees that the annuity owner can withdraw at least as much, over their lifetime, as they originally paid into the annuity, protecting them if the annuity's value falls.
  • Guaranteed Minimum Income Benefit (GMIB) — guarantees the annuity owner a minimum level of annual income regardless of how the underlying investments perform, similar to the guarantee a fixed annuity provides.

10. Additional Insured Riders

A base life policy can also be extended to cover people other than the primary insured through additional insured riders.

  • Spouse (or other-insured) term rider — adds term coverage on the insured's spouse for a limited time; it typically expires once the covered spouse reaches age 65.
  • Children's term rider — adds a single term rider covering every child in the family for a limited amount of coverage; most insurers let each child convert their portion to a permanent policy once they reach a stated age, without evidence of insurability.
  • Nonfamily (other-insured) rider — extends coverage to someone who is not a family member, commonly used by businesses to insure a key employee or business partner alongside the primary insured's own coverage.

11. Return of Premium Rider

A return of premium rider, built using increasing term insurance, adds to a base policy the promise that if the insured dies before a stated age, the beneficiary receives not just the face amount but also a sum equal to every premium the insured has paid. This rider usually expires at a specified age, such as 60.


Key Takeaways
  • Disability income rider waives premiums and pays a monthly income during disability; waiver of premium only waives premiums, after a waiting period usually of 6 months, and generally expires at 65
  • Accidental death (double/triple indemnity) requires death within 90 days of the accident; AD&D adds a capital sum for dismemberment on top of the principal sum for death
  • Accelerated death benefits pay part of the death benefit early for a terminal illness (life expectancy under 2 years); a long-term care rider pays early for ADL-triggered LTC needs — both reduce what remains payable at death
  • Guaranteed insurability lets the insured buy more coverage at set dates/events without proof of insurability, usually until age 40
  • A no-lapse guarantee rider (universal life) prevents lapse even with insufficient cash value, at the cost of premium flexibility
  • LTC agents need 8 hours of training annually for the first 4 years, then 8 hours per 2-year license term, counted within (not added to) overall CE
  • Additional insured riders (spouse, children's term, nonfamily) extend coverage to people beyond the primary insured; a return of premium rider refunds all premiums paid if death occurs before a stated age