A term
specific to the the life insurance market is
that of a "rider". The term is thrown
around quite a bit online and usually the
"rider" comes with high praises (from those
selling it) but we have a different view.
Let's look a little closer at the "rider" and
why a term life insurance shopper should
probably hop off that bus!
First, what
is a rider? A rider is essentially an
add-on benefit or option to a core life
insurance policy. It typically costs extra
premium and allows some flexibility, addition, or change to
the core coverage during the life of the policy.
The closest analogy both in function and form is
the insurance you might get on a rental car.
For most people, this coverage is redundant and
an additional expense due to their existing car
insurance or benefits through plans such as AAA.
It's insurance on top of insurance. Riders
can be the same. They tend to insure your
insurance essentially but at a price and in our
view, it's better to put that
life insurance premium dollar
towards core benefit instead of the very
profitable (to the carriers) add-ons that the
carrier offers. It takes advantage of the
fact that for many people, they do not discern
the probability of risk and feel uncomfortable
saying no to a risk if it's specifically broken
out no matter how rare. In life, you can't
insure against every possible risk...it would
cost too much. Let's look at some of the
usual suspects for commonly offered term life
riders.
Guaranteed
Insurability Rider. This essentially
allows you to add additional term life coverage
to existing core amount without going through
life insurance underwriting (i.e. qualifying based on health).
This rider is purported to address changes in
needs later in life. Due to the
cost of
waiting and the value of buying as much life
insurance as can be afforded at an earlier age,
it probably makes sense to put that premium
amount into more core coverage.
Accidental
Death Benefit. This rider essentially adds
an amount of insurance to be paid out in case the
insured dies as a result of injury. It's
akin to a roulette wheel where people are
putting chips on different colors (number 5 is
going to hit) as a guessing game to how death
might occur. Death is obviously a
traumatic occurrence (hence the need for life
insurance anyway) so the cause is probably not
so much the issue as the resulting financial
protection of your loved ones.
Waiver of
Premium rider. This rider allows the
policy to stay in force without the payment of
premium if the insured becomes totally disabled
(according to the differing definitions of the
carriers). One of the key benefits of
term
life insurance is that the premium amount is so
low relative to other types of life insurance
such as whole. This is really a built-in
protection against lapse of premium.
Paying $40/month becomes less burdensome than
say $300 monthly for whole life.
Accelerated
Death Benefit Rider. This rider allows the
insured to receive a percentage of the total
term life amount if he/she is diagnosed with a
life shortening disease (again, according to the
carrier's list and requirements). There's
an entire market out there now called viaticle
settlements which address receiving money (for
the recipients usually) in this case.
These are a
few of the most common riders available on the
market but it's definitely not the complete
list. Riders have sprung out in many
different forms as they are a great source of
revenue to the
life carriers. We're not here to
talk you out of a given rider...if one speaks to
you then by all means, you are free to opt as
you like but we feel it's important to give you
the full picture in order to make a good
decision when purchasing term life insurance. |