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One of the unique features of a life insurance contract is the ability for the policy owner (typically the applicant and insured) to customize the policy to meet their specific needs through policy add-ons (also referred to as riders or endorsements). Riders are special policy provisions that provide benefits not found in the original contract or that make adjustments to the policy.
Since many of these riders provide additional benefits to the policy owner, their inclusion typically increases the policy's cost (i.e., an additional premium).
Adding policy riders, like customizing a new vehicle with leather seats, a sunroof, or an extended warranty, all cost additional money.
Riders are generally added at the time of application; however, in some circumstances, the policy owner may add a rider after the policy is issued. If the policy owner allows the policy to lapse, any additional riders added to the policy will cease, even if the lapsed policy is automatically converted to another type of coverage as provided in the original policy.
The waiver of premium rider ensures that an insurance policy remains active if the insured becomes totally disabled. After the waiting period stated in the contract — usually six consecutive months of total disability — the insurer waives future premium payments until the insured returns to work. During this period, the insurer effectively makes premium payments, allowing the policy's cash value to accumulate and dividends, if applicable, to be paid as usual. Some companies will reimburse premiums paid during the waiting period. If the insured recovers, they resume premium payments without repaying the premiums that were waived.
This rider is optional and requires an additional but generally affordable premium. It can be added to both term and permanent life insurance policies. The rider typically expires when the insured reaches a specified age, usually between 60 and 65. If the insured becomes disabled before the rider expires, premiums will continue to be waived even if the waiting period extends past the cutoff age.
To qualify for the waiver, the insured must be under a physician's care and meet the policy's definition of total disability, which can vary. Some policies define total disability as the inability to perform one's own occupation, while others use a broader definition, such as the inability to engage in any gainful employment. Some policies may combine these definitions, applying the "own occupation" standard for an initial period and then switching to the "any occupation" standard.
The rider does not provide income or alter the policy's coverage. It typically excludes disabilities resulting from acts of war, self-inflicted injuries, or criminal activities. If premiums are paid during the initial six months of disability, they will be refunded from the first day of disability.
The waiver of cost-of-insurance rider — also referred to as the waiver of monthly deductions — is typically reserved for universal life policies. Premiums for a universal life policy can fluctuate. For this reason, insurers generally only offer to waive the monthly cost of the insurance, not the total premium paid by the insured. In this case, the cash value will remain level and continue to collect interest, but it will not grow to the extent that it would have had the full premiums been paid.
In some cases, a company may write the rider to waive the guaranteed minimum annual premium instead of the monthly cost of insurance. In this case, the policy's cash value will grow by the additional premium payment minus the actual cost of insurance. The cash value will also continue to collect interest.
The payor rider, also known as the payor benefit provision or payor clause, is added only to a policy an adult purchases to cover the life of a child or juvenile. This rider waives premiums until the child reaches a specified age (usually 18, 21, or 25) if the premium payor (i.e., parent or guardian) dies or becomes totally disabled.
The face amount stays exactly the same; the waiver does not convert the coverage to paid-up or reduce it. Waived premiums are not considered taxable income to the policyowner. Also, the insurer cannot "claw back" the premiums later; the waiver is a contractual benefit, not a loan.
The rider covers only the policy's premium payments; it does not provide any income or death benefit to the child.
Don't confuse the payor rider with the guaranteed insurability rider. The guaranteed insurability rider may be added to a policy that covers an adult or child and allows the insured to buy more insurance (as an adult) without a medical exam. The payor rider waives the premiums required for a child's life insurance policy when their payor dies or becomes disabled.
For example, suppose Mom and Dad purchase a $50,000 whole-life insurance policy on newborn Ava. Mom is the payor; Dad is the owner. The payor benefit provision states that premiums will be waived up to the insured reaching age 21, if the policy's payor dies or becomes totally disabled before the insured child reaches age 21. In Year 4, Mom suffers a qualifying total disability, and the rider activates, with the company beginning to pay the $480 annual premium. In Years 5-20, the policy's cash value, dividends, and any riders remain fully active and build exactly as if Mom had paid $480 every year. At Ava's 21st birthday, the waiver ends, premiums resume, and Dad (or Ava, if ownership is transferred) is now responsible for future payments — or can choose to use dividends/cash value to keep the policy paid-up. Once executed, a payor rider turns the life insurer into the premium payer for the rest of the rider period. Coverage continues undiminished, cash values grow normally, and all other riders remain effective, relieving the family of the financial burden at precisely the time they are coping with the loss or disability of the premium-paying parent or guardian.
The disability income benefit rider provides an income benefit if the insured is totally and permanently disabled as defined by the policy. Most disability income benefit riders provide for a small, stated benefit, such as 1% of the face amount of the policy, that is payable if the insured is totally disabled. The monthly income paid is generally limited to no more than $1,000 per month. Income benefits begin after the stated waiting period previously described.
For example, if Jim owns a $20,000 life insurance policy with this rider included and becomes totally disabled, he will be paid $200 per month (1% of $20,000).
The disability income benefit rider contains the same type of qualifications and structure as the waiver of premium rider. In fact, most disability income benefit riders waive the premium in addition to including a disability income benefit.
In the event of an insured's total and permanent disability: the waiver of premium rider covers the policy's premiums during total and permanent disability; the disability income rider provides the insured with a monthly income based on the policy's face amount during a period of total disability.
The accidental death benefit (ADB) rider may also be attached to a life insurance policy for an additional premium. This rider provides an additional death benefit by multiplying the face policy's amount when the cause of death is an accident. Policies that pay a multiple of two times the policy face amount are referred to as double indemnity, while those that pay three times the death benefit for death due to accidents are referred to as triple indemnity, and so forth.
This rider often includes a restriction that the insured must die within 90 days of the accident for the ADB to be paid. Therefore, the rider typically doesn't provide any coverage if the insured dies more than 90 days after the accident. Statistically, in such cases, the cause of death is not accidental, but more likely due to heart, kidney, or liver failure, pneumonia, or some other type of "non-accidental" cause.
For example, if the insured suffers a fatal heart attack or stroke while driving a car, and the car crashes into a tree, the policy will not pay the rider benefit.
The accidental death benefit will not be paid if the death is due to "complications." This is a potential test point. Remember, the cause of death that appears on the death certificate indicates whether the insurer pays the claim.
Additionally, the definition of "accidental death" doesn't include accidents resulting, directly or indirectly, from an ailment or physical disability relating to the insured. Accidental deaths resulting from self-inflicted injury, war, riot, insurrection, or private aviation activities are also excluded.
An accidental death rider provides an additional death benefit for a limited period at the lowest possible cost. Typically, the extra protection generally expires after the insured reaches the age of 60 or 65. The benefit also drops off if the policy owner surrenders the policy and selects one of the non-forfeiture options.
Some accidental death riders may include dismemberment benefits as well. The death benefit paid under accidental death coverage is referred to as the principal sum. The dismemberment (severance) benefit paid under the accidental death and dismemberment rider is referred to as the capital sum and is most often one-half of the principal sum.
Dismemberment is usually defined as the loss of an arm or hand, or the loss of a leg or foot. Most policies also pay dismemberment benefits for presumptive types of disability, such as the loss of sight or hearing. The principal sum may be paid when an insured suffers more than one dismemberment.
For example, if a $50,000 AD&D benefit is purchased, and the insured suffers a loss of hearing, the policy will pay a (capital) sum of $25,000 (i.e., 50% of the principal sum).