Other Common Policy Riders

Return of Premium Rider

The return of premium rider pays to the owner of a term life insurance policy a sum equal to all or a portion of the premiums paid if the insured is alive at the end of the policy term. Interest is not included in the returned premium. If the insured dies during the policy term, the policy face amount is paid to the beneficiary but not any paid premiums. If the policy is canceled before the end of the policy term, no premiums are returned.

All of the following statements regarding the accidental death benefit rider to a life insurance policy are correct EXCEPT Benefits are payable under the accidental death benefit rider only if the insured dies as a result of an accident. this rider is also called a double indemnity rider. Most insurers limit the age at which insured policyowner may add an accidental death benefit rider. There is usually no additional premium required to buy an accidental death benefit rider.

There is usually no additional premium required to buy an accidental death benefit rider.

Which of the following riders is NOT available with any type of life insurance policy? the guaranteed dividend rider the cost-of-living-adjustment rider the guaranteed insurability rider the accidental death and dismemberment (AD&D) rider

the guaranteed dividend rider

Guaranteed Insurability and Universal Life

A guaranteed insurability rider can also be added to a universal life insurance policy. However, UL's flexibility requires some changes with how the rider works. With traditional policies, the exercising of an option results in the issuance of a new additional policy. With UL, exercising a guaranteed insurability option results in an increase in the underlying policy's specified amount (i.e., death benefit). Also, the future cost of monthly insurance deductions made is increased. This increase reflects the new net amount at risk resulting from the added death benefit.

Which of the following statements most correctly describes the accidental death benefit rider on a life insurance policy? It pays benefits if the insured suffers a disabling injury, permanent dismemberment, or death resulting from an accident. It pays benefits only in the event of accidental death. It pays benefits if the insured dies as result of an accident or a sudden illness. It pays benefits if the insured dies as result of an accident or a self-inflicted injury.

It pays benefits only in the event of accidental death.

Term Riers

A term rider can be added to any policy to increase the death benefit payable if the insured dies during the specified term. A term rider provides an additional death benefit for death due to any cause. Term insurance riders are pure death benefits. They have no cash value or other living benefits associated with them. If the insured dies during the term of coverage, then the death benefit is paid. It does not matter whether the term coverage is provided by policy or rider. If the insured is alive at the end of the term, then the coverage ends without value. As such, term life insurance is temporary protection. Don't confuse the duration of coverage provided by a term rider with the duration of coverage provided by the base policy. A term rider provides additional coverage for a limited time. The underlying permanent policy provides coverage until the insured dies or until the policy is otherwise surrendered, lapsed, or canceled. Term riders of all forms (including those used with COL and return of premium riders) are usually less expensive than comparable term policies issued separately. That is because some of the costs associated with policy issue are reduced when the coverage is added as a rider and the cost savings is passed on to the policyowner.

Which statement regarding life insurance cost-of-living riders is NOT correct? As the Consumer Price Index (CPI) increases, so does the policyowner's coverage, providing the insured can prove insurability. The cost-of-living rider on a whole life policy is typically an increasing term insurance rider. Adjustable life policies often include a cost-of-living agreement, so if the coverage increases, the premium may also rise. Universal life policies, with their highly flexible terms, are not good candidates for the addition of a cost-of-living rider.

As the Consumer Price Index (CPI) increases, so does the policyowner's coverage, providing the insured can prove insurability.

Features

Guaranteed insurability riders let the policyowner buy more life insurance of a specified amount on specified policy anniversaries. Such anniversaries are usually in three-year intervals nearest the insured's age of 25, 28, 31, 34, 37, and 40. Other guaranteed insurability riders provide purchase option dates that begin earlier than age 25 and continue until age 65. If the policyowner decides not to buy an additional life insurance policy under the rider on an option date, that option is lost and the policyowner must wait until the next option date to increase coverage. In addition to these specified option dates, the rider may provide alternative option dates to recognize special life events, including marriage and the birth (or adoption) of a child. Exercising an option on a special basis eliminates the next scheduled option date. For example, if a policyowner exercises an option at age 29 with the birth of a child, the next regularly scheduled option at age 31 would no longer be available and the insured would have to wait until the following scheduled option date (e.g., age 34) to exercise it again. Premiums for the policy bought under a guaranteed insurability rider option are based on the insured's attained age when the option is exercised. The original policy premium will remain unchanged, but the new policy's premium will be based on the insured's age when that policy is issued.

Guaranteed Insurability Rider

The guaranteed insurability rider effectively does just that. It guarantees that the policyowner can buy additional permanent life insurance on the insured's life in the future even If the insured has become uninsurable. With the guaranteed insurability rider, additional coverage can be obtained without requiring the insured to provide evidence of insurability. This rider is sometimes referred to as a purchase option rider or additional insurability option rider. It is usually available on permanent life insurance policies only.

Limits

The guaranteed insurability rider limits the policies that people can buy to any form of permanent life insurance policy the insurer is offering at the time the option is exercised. Term insurance is not normally available under the option. If the policyowner chooses, the new policy he or she buys under this rider can have the same additional benefit riders as the original policy had, with the exception of a guaranteed insurability rider. (The insured pays an additional premium for these riders.) Possible additional benefits might include waiver of premium and accidental death benefit. The amount of each policy that people can buy under the option is usually limited to the lesser of the face amount of the policy containing the guaranteed insurability rider or a specified amount, such as $25,000 or $50,000.

No-Lapse Guarantee

Variable universal life (VUL) policies typically include a no-lapse guarantee provision or rider that prevents the policy from lapsing should policy values drop below the minimum amount needed to support the policy. If it is included in a provision that is a permanent part of the policy, no additional premium may be charged. If provided as an optional rider, an additional premium is usually charged. For this guarantee to be offered, the sum of premiums paid to date must equal if not exceed the minimum premiums due at that time. Provided that is the case, a decrease in policy values (due to a drop in stock prices) will not result in the policy lapsing. If the no-lapse guarantee period ends at a specified date, and policy values at that time are insufficient to maintain the policy, then the policy may lapse at that point. A disclosure statement must be provided to applicants who purchase this rider clearly explaining this risk

Accidental Death Benefit Rider

An accidental death benefit rider provides an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy's face value, though modern policies often allow the insured to buy a rider for any multiple of the face value. These riders may be referred to as "double indemnity" or "triple indemnity" riders. An additional premium is required to buy such a rider. An accidental death benefit rider pays its additional benefit only if death occurs because of an accident. Death resulting directly or indirectly from illness, physical disability, or self-inflicted wound does not qualify for the additional benefit. Also, the death must occur within a stated period following the accident, such as 60 or 90 days. Most insurers limit the age at which the insured policyowner may add an accidental death benefit rider (such as age 50). After the insured reaches age 60 or 65, most of these riders expire. When the rider expires, the premium charged for it also ends. In addition, the rider does not cover any of a policy's paid-up additions that the insured may have bought with policy dividends. While in effect, the additional insurance from the rider does not build any cash values.

Cost-of-Living Rider

The cost-of-living (COL) rider gives the policyowner the option to increase the face amount on his or her policy to fight inflation. This type of rider is tied to an inflation index such as the consumer price index (CPI). As the CPI increases, so does the policyowner's coverage, without requiring the insured to prove insurability. Insurance companies offer different forms of the COL rider based on the underlying policy. Common examples: The COL rider on a whole life policy is typically an increasing term insurance rider. The CPI-driven rate of increase is usually capped at about 5 percent per year. If the CPI declines, the coverage does not decline at the same time. Instead, the insurer waits until the CPI increases again. Each time a new rate goes into effect, the insurer charges a new premium. Adjustable life policies often include a COL agreement. This agreement waives the need to prove insurability when COL increases raise the amount of coverage. If the coverage increases, the premium may also rise. A COL agreement can also be added to term policies. Universal life policies, with their highly flexible terms, are not good candidates for the addition of a COL rider