Chapter 7.6

Waiver of premium

Allows the policyowner to waive premium payments during a disability, and keeps the policy in force. Requires an additional premium charge. An option that may be rated or denied by the insurer. The disability must be total and permanent. After a certain age (usually 60 or 65), the waiver of premium rider is void. If the policyowner becomes disabled right before the rider expiration date, the rider will still apply. There is usually a waiting period of 3 or 6 months once the policyowner becomes disabled before the first premium will be waived. The policyowner is not required to pay back the waived premiums if he recovers from the disability. Can only be added to a term policy because there is no cash value.

Disability income rider

If the policyowner becomes totally and permanently disabled, the insurer will pay the insured a periodic income, and in some policies it also waives the policy premiums. The periodic income is based on the policy's face amount and is paid weekly or monthly during the insured's disability. There is usually a waiting period of 3 or 6 months once the policyowner becomes disabled to establish that the disability is permanent.

Family term rider

combines the spouse and children's term rider in one rider. When a family term rider is added to permanent coverage, then the family term rider is level term.

Spouse/Other Insured Term Rider

gives term protection for a specific period of time and amount. The rider typically expires when the spouse/other-insured reaches a certain age, such as 65.

Accidental death benefit/multiple indemnity rider

pays an additional sum, termed the principal sum, to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple. the insured must die within a certain time period of the accident, usually 90 days. The rider usually excludes death from accidents occurring while the insured is at war, committing a crime, or in an aviation incident, other than in a regularly scheduled commercial flight. The ADB typically expires when the insured reaches a certain age, such as 65. The ADB does not build cash value and only multiplies the policy's face amount. If a policy's face amount is increased by dividend options, then the ADB only applies to the original policy face amount.

Guaranteed insurability rider/future increase option

permits the policyowner to buy additional permanent life insurance coverage at specific points in time in the future (i.e., marriage, births, etc.) without requiring the insured to provide proof of insurability. If the future increase option is not exercised within a specified time period, such as 90 days, of each option age, then the option is forgone. The added coverage is rated at the insured's attained age. Each policy specifies how much additional coverage can be purchased. The GIR is not exclusive of other riders, so if the policyowner has the waiver of premium rider and the GIR, it is possible for both riders to be exercised simultaneously. The guaranteed insurability rider usually drops off when the insured reaches the age of 40.

To receive the accelerated benefit

the insured must have a terminal illness, or in some policies confinement to a nursing home suffices for payment. The amount of the accelerated benefit varies by policy, but is usually anywhere from 25-80%. Insurers are permitted to pay out the entire death benefit. The accelerated benefit is not subject to tax since the funds are used to pay for medical care.

Return of cash value rider

allows a whole life policy's cash value to be included in the death benefit. Similar to the return of premium rider, this rider doesn't actually return the policyowner's cash value; instead, the rider provides the additional benefit through an increasing term rider that always equals the policy's cash value. The return of cash value rider was created as a response to policyowners who misunderstood how cash value in permanent life insurance accrues interest to equal the policy face amount.

Substitute insured rider/Exchange privilege rider

allows the insured under a life insurance policy to be changed. The substitute insured rider is useful for business life insurance contracts where key employees change employers or retire. Rather than go through the policy replacement process, the substitute insured rider allows the policy to continue with the same face amount; however, the policy premiums will be refigured based on the new insured's age, health, sex, and insurability.

Riders

Add or take away from policy benefits

Payor Rider

Used for juvenile life insurance. The payor rider states that if the individual paying the premiums becomes disabled or dies before the child reaches a certain age, such as 21 or 25, the policy premiums will be waived until the child reaches the specified age. The policy will stay in force while the premiums are waived. This rider protects parents or guardians who purchase life insurance on their children from lapsing coverage if they become disabled or die before the child is of age to assume policy ownership.

Waiver of cost insurance/monthly deductions rider

allows a universal life policyowner who becomes disabled to waive the cost of death protection, but does not waive the cost of premium required to build cash value.

Accelerated benefit rider/Living benefit rider

allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness. Depending on the policy, life insurance premiums may be waived upon payment of the accelerated benefit. intended to provide a terminally ill insured with necessary funds to pay medical expenses and nursing home costs during a terminal illness while the insured is living, and relieves financial burdens associated with terminal illness.

Cost of Living Adjustment Rider

allows the policy face amount to be adjusted to account for inflation based on the consumer price index (CPI). If the face amount is increased, the premium will be increased. If the face amount is decreased, the premium will be decreased. If the face amount cannot be adjusted, then an increasing term rider is added to the coverage. The policyowner has the option of accepting or declining such changes to the policy.

Long Term Care Rider

used to pay long-term care costs. The long-term care rider may be separate from the life policy, in which case the accelerated benefit does not reduce the death benefit, or may be incorporated into the life insurance policy, thereby reducing the death benefit or policy cash value. An example of the integrated accelerated benefit is the living needs rider which pays the accelerated benefit as long as the insured is expected to die within one to two years. A living needs rider may pay up to 80% of the death benefit. Prior hospitalization is often required for the rider to kick in.

Children's term rider

permits children to be insured under term rider protection on a life insurance policy for a certain length of time. Children's term riders usually expire when children reach the age of 18 or 21. When children reach the limiting age, they are usually given the option to convert their term coverage to whole life. Biological, step and legally adopted children can be insured under term riders.

Term rider

Adds term coverage to an existing life insurance policy. There are several varieties of term riders, including: spouse/other insured, children, family, return of premium, and return of cash value.

Death Benefit

Face amount - Accelerated benefit paid to insured - loss of interest

Return of premium rider

pays the total amount of premiums paid into the policy as long as the insured dies within a certain time period specified in the policy. The death benefit is comprised of the face amount plus the total premiums paid into the policy. Most policies drop the return of premium rider when the insured reaches age 60. The return of premium rider is simply an increasing term rider that matches the total premium input. This rider can be costly because as the insured ages, the cost of term protection increases.