5 - Life Insurance Riders

Riders

Add benefits to a life insurance policy -- customize coverage to fit the insured's needs -- policyowners are charge an additional premium for certain types

Spouse Rider or Children's Rider

provide convertible term insurance for a spouse or an immediate family member of the primary insured

Multiple Dismemberment

losing two or more limbs would compound for a full/maximum benefit payment (principal sum)

Disememberment

--severance of feet, arms legs or hands --loss of sight or hearing --paralysis

Disability Riders

-Waiver of Premium -Waiver of Monthly Deductions -Waiver of Cost Insurance (Universal Life) -Disability Income Rider -Payor Benefit Rider

2 Approaches to LTC:

1. Independent Approach 2. Integrated Approach

Riders Affecting Amount of Death Benefit

1. Insured Term Rider 2. Return of Premium Rider 3. Accidental Death Rider 4. Accidental Death or Dismemberment Rider 5. Guaranteed Insurability Rider 6. Cost of Living Rider

3 Term Insurance Riders Available

1. Level 2. Decreasing 3. Increasing

Other (Additional) Insured Riders

1. Spouse 2. Children 3. Family 4. Exchange of Insured **other insured riders can also be bought for certain non-family individuals such as business associates term insurance provided by the other (additional) insured rider is often convertible to permanent coverage during the effective period of the rider

Waiting Period

Period of time before the waver of premium takes effect that the insured must be unable to work for -- usually 90-180 day If insured is disabled at the end of the waiting period, the company retroactively refunds any premiums paid during the waiting period

Reduction of Death Benefit

accelerated death benefit payments range from 25-100% of death benefit -- payment depends on face value, terms of contract & state of residence -- amount of acc. payment will be reduced by any outstanding loans against the policy -- death benefit is reduced by amount of acc. benefit payment

Insured Term Rider

adds term insurance to a permanent policy -- coverage similar to term insurance, but premium lower than if bought as separate policy -- limited time of rider -- expires at a certain age of # of year -- rider premium is paid while it's in force --in event of insureds death, both term insurance rider & underlying permanent insurance policy's death benefit would be paid to the named beneficiary

Long Term Care (LTC) Rider

advance of the death benefits while insured is living -- % of face amount each month -- may be used to pay for home care, assisted living and nursing home care -- reduces death benefit payable upon death -- evidence of insurability necessary for underwriting, some insurance companies may also offer simplified one-page applications LTC may offer benefits consistent w benefits offered by a stand-alone long-term care policy -- insured can elect to use all, some or none of their life insurance benefit -- while they are still living to help pay for long-term care expenses

Cost of Living Rider

based on Consumer Price Index (CPI) -- extra coverage to keep up with inflation -- as inflation increase, so does the death benefit -- premium based on attained age -- without proof of insurability If CPI decreases --> insured's coverage is not reduced

Disclosure (acc. DB)

brief description of the acc. benefit & definitions of conditions or occurrences triggering payment of benefits are given to applicant description: includes explanation of effect of payment of benefit on policy's cash value, accumulation account, death benefit, premium, policy loans and policy liens

Qualifying Events for an Accelerated Death Benefit Payment

can only be requested when insured has limited life expectancy or meets certain medical circumstances including: 1. terminal illness: death expected within 24 months 2. serious illness: such as cancer, which would result in a reduced life expectancy 3. long-term care: due to inability to perform a # of activities of daily living 4. being admitted to hospice or permanent confinement in a nursing home 5. catastrophic illness: requiring extraordinary treatment, such as an organ transplant

Family Rider

covers both the insured's spouse and children

disabled

definition of disabled often changes after a period of time to the inability to work at any job that fits with the insured's education, training or experience

Waiver of Monthly Deductions or Waiver of Cost Insurance (Universal Life)

disability waiver for flexible premium policies -- waives monthly cost of insurance deductions that are made from cash account instead of waiving the premium payment (i.e. cash account deductions waived) -- has waiting period --A flexible premium policy cannot lapse while the waiver of monthly deductions benefit is in effect -- cash value continue to grow with the interest that is credited monthly -- has a 3-6 month waiting period and expires between the ages 60-65

Accidental Death Benefit (ADB) Rider

double or triple indemnity: pays benefit if insured dies as a result of an accident -- death must occur within 90 days of accident -- death benefit is 2x or 3x the face amount -- usually expires when the insured reaches age 60-65 ADB rider does not cover other causes of death like: illness, disability or self-inflicted injury Death resulting from: war, commission of crimes or aviation activities other than on a commercial flight, are also excluded from coverage

Return of Premium Rider

increasing term insurance rider -- amount of rider = total premiums paid for rider & underlying permanent policy -- rider does not return actual premiums, but pays an additional term insurance death benefit = amount of premiums paid -- death must occur while rider is in force -- limited duration & expire at specified age or after specific # of years

Integrated Approach

links LTC benefit paid to the life policy's face amount &/or cash value

Guaranteed Insurability Rider (GIR) or Guaranteed-Insurability Option (GIO) or Guaranteed Insurability Benefit (GIB)

may be attached to permanent life insurance policy -- allows owner to purchase additional life insurance at specified intervals in the future for certain amounts without having to provide evidence of insurability cost based on insured's attained age -- options to purchase exercised 25-40 at 3 year intervals typically -- insurance available at standard rated -- must be within 90 days of listed option date current age of insured determines # of options available to purchase additional insurance -- insured may advance next option date due to a life event (defined as marriage, birth or adoption)

Waiver of Premium

one of the most common types of insurance riders -- written if insured & owner are the same person -- waives future premium payments as long as the insured is disabled -- has waiting period: insured pays premium during this time even though disabled -- company will pay future premiums after the waiting period -- premiums paid during waiting period reimbursed -- insured pays future premiums when disability ends it policyowner becomes disabled, this rider will pay the premiums so the policyholder can continue to have the coverage for the duration of the policy -- policy stays in force during period of disability and scheduled policy cash values continue to be credited available during the insured's working year and expires between ages 60-65 -- if insured permanently disabled before that age, premiums will continue to be waived for life

Accelerated Death Benefits Rider

option added to life insurance policy enabling policyowner to apply for advances of the death benefit while insured is still alive -- insured must have limited life expectancy or meet certain medical circumstances in order to be eligible for an advanced payment of all or a portion of a life insurance policy's death benefit -- reduces death benefit payable to beneficiary upon death of insured -- disclosure by company of effect on death benefits and other benefits (Medicaid etc.)

Disability Income Rider

provide the insured with a monthly benefit check (income) while disabled -- based on life insurance policy death benefit amount 1% of face amount -- X dollars per month per $1,000 face amount -- length of time that income payments will continue depends on the definition of disability int the policy during disability premiums are waived -- life insurance policy stays in force -- if insured dies, the beneficiary receives the face value of the policy -- cash values continue to build, if the policy is participating, then dividends continue to be paid

Independent Approach

recognizes LTC benefit as independent from the life policy because the benefits paid to the insured will not affect the life policy's face amount or cash value

Accidental Death Rider & Dismemberment (AD&D) Rider

supplementary coverage that can be added to traditional life insurance policies principal sum (=amount of rider): pays extra benefit if death due to accident (w/ in 90 days of accident) & 100% of death benefit is paid to beneficiary capital sum: pays extra benefit if dismemberment occurs & 50% of the principal sum is paid to beneficiary

Exchange Privilege (Substitute Insured) Riders

used to change the insured to a different person -- typically used when a business owns the policy & is also the beneficiary & insured is key employee -- rider switched insured to another employee if key employee retire or leaves the company -- policy's face amount stays the same & premiums are adjusted based on new insured's age and other rating factors -- new insured is required to provide proof of insurability (submit a medical examination)

Payor Benefit Rider

usually found with juvenile policies -- states if person is responsible for premiums (i.e. child's parents) becomes disabled or dies before child is an adult, premiums are waived until stated child's age (usually 18 or 21) -- may require evidence of insurability (adult) medical underwriting may be required since this rider adds insurance on the payor (adult)