Unit 10: Riders

Waiver

A type of rider that is used to exclude benefits and for which no premium is charged.

Accelerated Benefits

Accelerated benefit riders or provisions are standard in most individual and group life insurance policies. Terminal or severe chronic illnesses often experience devastating financial hardships. These funds are usually used for such necessities as rent, food, and medical services. Qualifying conditions include: a medical condition that would drastically limit life span as specified in the policy, or instance, 24 months or less; a medical condition that requires extraordinary medical intervention, without which the insured would die; a condition that usually requires continuous confinement in an eligible institution as specified in the policy if the insured is expected to live there for the rest of the insured's life; a medical condition that would, in the absence of extensive or extraordinary medical treatment, drastically limit a life span. Disclosures When a policy or certificate containing an accelerated benefit provision is applied for or delivered, the producer is responsible for providing the applicant a summary of coverage that includes: a brief summary of the accelerated benefit and definitions of the conditions or occurrences triggering payment of the benefit; an explanation of any effect of the payment of an accelerated benefit on the cash value, accumulation account, death benefit, premium payments, and any loans or liens. When an accelerated benefit option is exercised, the insurer must provide to the policyholder or certificate holder and any irrevocable beneficiary an illustration that: numerically demonstrates any effect the payment of the benefit will have on the cash value, accumulation account, death benefit, premium payments, and any loans or liens; and includes a statement that receipt of accelerated benefit payments may adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements, that benefits may be taxable, and that assistance should be sought from a personal tax advisor.

Accidental Death (Double Indemnity)

An accidental death benefit (ADB) or DOUBLE INDEMNITy provides double the face amount of the policy if the insured dies due to an accident. An additional premium will be charged for this benefit. To be covered, death must occur within 90 days of an accident. Payment will not be made by an insurer if death results from certain causes, including: illegal activities; war; aviation activities (except passenger travel on scheduled or commercial airlines); where an accident was involved with conjunction with illness, disease, or mental infirmity.

Additional Insureds

Coverage for a spouse may be obtained to cover the extra expenses of child care and home-related costs by purchasing some sort of family term insurance.

Living Benefits Provision

Long-term care (LTC) insurance, which reimburses health and social services expenes incurred in a convalescent or nursing home facility, can be marketed as a rider to life insurance policies. LTC rider benefits includes: elimination periods of 10-100 days; benefit periods are three to fiver years longer; prior hospitalization for at least three days may be required; benefits may be triggered by impaired activities of daily living; levels of care include skilled, intermediate, custodial, and home health care. In addition, certain option benefits also may be provided such as adult day care, cost-of-living protection, hospice care, and others. TWO APPROACHES TO LTC RIDER CONCEPT 1. The generalized or independent approach recognizes the LTC rider 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. The integrated approach links the LTC benefits paid to the life policy's face amount and/or cash value. 2. The living benefit or living needs rider combines life insurance and LTC benefits, drawing on the life insurance benefits to generate LTC benefits. Under the LTC option, up to 70-80% of the policy's death benefit may be used to offset nursing home expenses. Under the terminal illness option, 90-95% of the death benefit may be used to offset medical expenses.

Substitute Insured Rider

Permits a change of insureds. Also known as the exchange privilege rider. Generally used in such cases as a key employee. If this employee terminates employment or retires, the insurance can be switched over to apply to the employee's replacement, subject to evidence of insurability. The premium can then be continued with the same face amount, and premiums can be calculated on the basis of the new insured's age, sex, and other factors.

Riders

Special policy provisions that attach to the policy, or "ride" it. A rider also can refer to a term policy that is attached to a permanent policy to provide additional coverage. Riders can be used to enhance or add benefits to the policy, or they can be used to take benefits away from the policy.

Cost of Living

The purpose of a cost of living rider is to increase the death benefit to keep pace with inflation, tied to the CPI. No proof of insurability is required. Premium is based on attained age.

Return of Premium

The rider is simply an increasing amount of term insurance that always equals the total of premiums paid at any point during the effective years. In reality, the rider does not return premium but pays an additional amount at death that equals the premiums paid up to that time, as long as death falls within the time specified in the rider.

Waiver of Premium

The waiver of premium rider found in a life insurance contract states that if an insured becomes permanently and totally disabled during the term of the policy, premium payments will be waived during the period of disability. The additional premium paid for this benefit does not increase the face amount of the policy nor the policy's cash value.

Return of Cash Value

This rider does not return the cash value; it pays an additional amount of insurance equal to the cash value. Merely an additional amount of term insurance that is equal to the cash value at any point while effective.

Payor Rider

This rider or provision may be added to a life insurance contract which provides for the continuance of insurance coverage on the life of a juvenile in the event of the death or total disability of the individual responsible for the payment of the premiums. This benefit provides that premiums will be waived until the insured attains a specified age or the maturity date of the contract, whichever is earlier, in the event that the payor dies or become totally disabled.

Disability Income Rider

This rider waives premium payments while the policyowner is totally disabled and pays a specified amount of each month (income) to the policyowner while the disability continues.

Waiver of Cost of Insurance (Universal Life Policies)

This rider, also found in universal life insurance policies, will pay the minimum amount of premium to keep the policy in force if the insured becomes permanently and totally disabled. When the average premium payment is calculated, there would be enough premiums to not only cover the cost of insurance, but also to contribute, in part, towards cash value accumulation.