A rider is basically a provision that you can add to a life insurance policy that helps you customize it to make it best fit your needs. The rider provides additional benefits that the basic policy does not. Some you need to pay for, some are included at no cost.
Let’s cover the riders that are typically included with term life insurance policies without additional costs:
Accelerated death benefit rider: Life insurance is meant to provide a sum of money to your loved ones in the event of your death. But what happens if you become terminally ill, and it’s you who needs money for medical bills, or other expenses, especially if you can’t work? This rider, which is typically included in term life policies, allows you to access a portion of your death benefit if you become terminally ill. For example, if a physician determines you have less than 12 months to live, you may be able to access up to 75% of the death benefit, up to a certain maximum. But keep in mind that every company’s guidelines are a bit different.
Term conversion option: With this rider, you have the right to convert your term policy to a permanent life insurance policy within a specific time period. Each life insurance company has different rules regarding when you are eligible to convert, but having a term conversion option is advantageous because you can convert the term policy without a new medical exam and your rate is determined based on the health rating you got when you purchased the term life policy. That means that if you have a term policy and your health deteriorates, you may want to convert the policy so that it doesn’t expire and leave you with limited options for getting new coverage.
There are other riders that you can add to customize your policy, but that come at an addition cost. These include:
Child insurance benefit rider: This allows you to add life insurance for your child. Typically children between 15 days and 18 years old are eligible to be added to your policy, and coverage on your child expires between ages 21-25, depending on the life insurance company you choose. This rider typically allows anywhere between $1,000 to around $25,000 of coverage per child. Although no parent wants to go through losing and burying a child, coverage is inexpensive. So if you have young children and not much in savings to cover those costs, this rider can help with final expenses, should the unexpected happen.
Accidental death benefit rider: When you purchase a traditional life insurance policy, the death benefit covers you for “any cause.” This means that whether you die from natural causes, disease, accident or injury, you’re covered, and your beneficiaries are eligible to receive a death benefit. An accidental death benefit rider allows you to increase the death benefit on your policy in case you die as a result of an accident or injury (typically you must die within 90 days of the accident or injury to qualify). You can generally double your coverage in case of accident with this rider, up to an additional $250,000-$500,000 depending on the life insurance company.
Waiver of premium rider: This would protect you in case you got disabled. If you have this rider, the life insurance company would continue to pay your policy premiums for you as long as you are disabled. This is a rider that you need to qualify for, which would depend on your health and occupation. My recommendation is that if you buy a policy that is inexpensive and you know you will be able to afford the premium under any circumstance, you don’t need to pay an additional fee for this rider. However if you are buying a more substantial policy that has a premium that you will only be able to afford if you are earning the income you are used to, you may want to consider this option.
Return of premium rider: The most “expensive” term life insurance rider is the return of premium rider. With this rider, if you outlive the term of your policy, you get back all the premiums you paid. For example, if you buy a 20-year term life policy and you live past the 20 years, you will get back all premiums paid. While this sounds great, having this rider will significantly increase the cost of your term policy, and if you are a savvy investor, you may be able to get a better return on your investment doing it yourself.
Let’s take a look at an example. If a 40-year-old buys a $250,000 20-year term policy with return of premium, the policy would cost $884 per year. At the end of 20 years you would get back $17,680. Without the return of premium rider, the same policy would cost $300 per year, which means you are paying an additional $584 per year for this rider. If you invested the $584 each year, at a rate of 4% per year over 20 years, you would net $17,390—about the same as the return of premium on the life insurance policy. Any return over 4% and you would end up getting a better return investing the money on your own, as opposed to buying the rider. The bottom line is that if you find that you aren’t disciplined enough or knowledgeable enough to invest the money on your own, this rider could be beneficial, otherwise I’d recommend saving the money on your own as you could probably get a better return on your own.
What Do They Cost?
Now let’s discuss what these riders cost. We’ll use our 40-year-old male applying for a 20-year $250,000 term life insurance policy (at preferred plus non-tobacco rates). Keep in mind, these numbers are a guide. The annual cost of the main term policy would be about $200 per year. A $10,000 child rider would cost an additional $50 a year. A waiver of premium rider would cost less than $30 a year. An accidental death benefit rider would cost between about $150-$250 a year, depending on the life insurance company you choose.
Your children are grown, and you think the First National Bank of Mom & Dad is closed. Think again!
According to the recent Wall Street Journal article “The Big Squeeze” almost half of adults ages 40 to 59 provided some financial support to at least one grown child in the past year, with 27% providing the primary support. By contrast, 21% of this group are providing financial support for a parent age 65 plus.
The point is that you may still need that old life insurance policy you were thinking of dropping because your children are grown. And when you have grandchildren, the bank’s drive-up window is open 24/7.
If you are their means for financial support and are no longer here to provide it, where does your family turn to for help? The government? Social Security? Friends and other family members?
Perhaps it is time to take a financial inventory and make sure you are taking personal financial responsibility for the care of your family. If you need professional help, locate an agent or advisor through LIFE’s Agent Locator.
Looking forward to not having to go to work anymore? Planning trips to far-away places or considering lifelong learning options? Maybe you’re even thinking about those long-ago ambitions and wondering if you can turn them into reality?
Retirement can be a wonderful opportunity to make the most of your next stage of life, but it requires advance planning so you have the financial resources to accomplish your goals and pursue your dreams. Even if retirement is more than just a few years away, you still need to start the process now, to make sure everything is in place.
Next week is National Retirement Planning Week 2013 (April 8 to 12), the perfect time to do some serious pre-retirement planning to evaluate if you will be ready when the time comes. (Already retired? It’s not too late to evaluate your situation and make changes!) Here are some areas to assess:
Your Finances: Do you know how much money you’ll have available and how much you’ll need to live on? While you can take Social Security at age 62, waiting until you are 70 might make more financial sense. You’ll receive the same amount in lifetime benefits in either case, but the monthly benefit amounts can differ substantially based on your retirement age, according to the Social Security Administration. Working just a few years longer can translate into a stronger financial position.
As for calculating your post-retirement expenses, the National Retirement Planning Coalition cites rising inflation, increased taxes and market uncertainties as just three of the factors that can have a negative impact on your budget. And, if you retire with significant amounts of debt, you could find yourself having to return to the workforce just to make ends meet. Improving your financial state now while you still have an income can make your retirement years easier on your wallet. (More tips are available at SmartMoney’s “How to Set a Retirement Budget.”)
Your Insurance Coverage: Is your life insurance benefit amount enough to provide for your spouse or partner should you die unexpectedly? What about long-term care—do you have sufficient assets for both of you to cover the costs? And do you understand what Medicare covers—and what it doesn’t
Life insurance: If you have a mortgage, other financial obligations or a family member dependent on you for support, life insurance can fill the financial gap when you die. Depending on the plan, you may also be able to tap into it in case of a terminal illness diagnosis. (Not sure how much you need? Use LIFE’s Life Insurance Needs Calculator and compare results with your current policy amount.)
Long-term care insurance: While you’d like to remain independent as long as possible, odds are that, at some point, you will need some measure of assistance that could result in hiring a home health care aid or moving to an assisted living facility or nursing home. However, health insurance only covers doctor and hospital bills. Medicare just covers short-term skilled nursing home care and Medicaid only comes into play if your assets are very limited. A long-term care policy can ensure that you receive the level and type of care you need. (For more information, visit LIFE’s long-term care insurance page.)
Health insurance: While it’s true that you can sign up for Medicare coverage at 65 even if you aren’t ready to retire, (which could keep you from being charged higher premiums), you will most likely want to buy a Medicare Supplemental or Medigap policy to supplement your coverage and pay for expenses Medicare doesn’t cover. (Visit Medicare.gov for more details.)
With retirement potentially lasting 30 years or longer, you want to make sure you don’t outlive your money. Consult with your financial planner and insurance professional for advice on strengthening your pre-retirement position so you’ll be able to enjoy your post-employment years.
Why is it that children are so often the catalyst that helps us bring life into perspective? This video was created from the top photo submissions of people who wanted to show a “snapshot” of life’s wondrous moments. As you’ll see, children are the ones that convey the message. This video, which I’ve watch dozens of times, never fails to make me cry and it pushes life’s reset button for me. I hope it does for you, too.
Life insurance agents across the nation are seeing a sharp trend of families requesting no medical exam life insurance products. Even when their agents present them with lower cost, traditionally underwritten alternatives, a growing number of families are opting for “non-med” coverage.
It’s not surprising either. A life insurance medical exam is one of the biggest inconveniences of the process and for many families, it’s a deal breaker.
An increasing number of life insurance agents (including myself) are firm believers that life insurance products with no medical exam help families that otherwise wouldn’t have purchased life insurance.
No medical exam life insurance policies take away the excuse of: “I don’t have time.” or “I don’t want to take an exam.”
Life insurance companies are seeing the trend as well. Every year, there are more life insurance products with no medical exam entering the market. The market is becoming more competitive (finally), which is driving down premiums.
The Biggest Downside
The biggest drawback to this type of life insurance that doesn’t require an exam is it’s more expensive. Those who buy life insurance without the exam will be paying more than a traditional life insurance policy, in most cases. The life insurance company is taking on a bigger risk by not fully evaluating your health and makes up for that extra risk by charging more.
The Biggest Misconception
Since there is no medical exam, anyone can qualify, right? WRONG
The truth is: You have to be in decent health to qualify for these no-exam policies. First you have to answer a series of health questions. If you pass those, most no medical exam life insurance companies check your MIB (Medical Information Bureau), pharmacy and motor vehicle report.
Only if all of those come back within that life insurance company’s underwriting guidelines will you be approved.
High risks are declined for immediate coverage, but can qualify for “graded death benefit,” which are no-medical-exam policies that have a waiting period before full benefits kick in. These hig- risk life insurance policies are the most expensive life insurance policies on the market, but are an option.
When It Makes Sense
So, who should consider a no-medical-exam policy?
1. Those who haven’t seen their physician in two to five years.
At this point, you don’t know if your lab work (based on the blood sample they take) will be normal or not. Life insurance agents see a lot of people who say they’re the picture of good health who haven’t needed to see their physician within the last few years and when the lab results come, they’re shocked at their elevated cholesterol, blood pressure, triglycerides or whatever it is. This can increase your life insurance or even lead to a decline.
Securing a no-medical-exam life insurance no-medical-exam life insurance policy before applying for traditional coverage gives you the peace of mind that no matter what happens with your life insurance medical exam, your family will be covered.
If your traditional fully underwritten policy comes back without any hiccups on the medical exam, simply cancel your no medical exam life insurance policy.
2. If you need the life insurance coverage fast.
Average life insurance underwriting can take four to eight weeks. If you can’t wait that long, consider a no medical exam life insurance policy. If you qualify, you can have coverage in force within days instead of weeks.
We see a lot of people who buy coverage before they go on a trip or need coverage quickly to secure a loan. Others just want to get this off their mind immediately and use it as a placeholder until they make the time to qualify for a traditional (and less expensive) policy.
3. You don’t like getting poked and prodded.
No one really enjoys getting poked with a needle, but for some it’s a deal-breaker. Life insurance with no medical exam is your product. The medical exam is no longer an excuse to protect your family.
Life insurance without an exam isn’t for everyone, but it certainly has its place. Without a doubt in my mind, I know that more people are protecting their loved ones because of the simplicity of securing a life insurance policy.
If you’re considering a no-medical-exam life insurance policy, contact your life insurance agent and explore your options. Get this life insurance purchase off the backburner and protect your family today.