Life Insurance: Policy Riders Flashcards
What is a Life Insurance Policy “Rider”?
2 Parts
- Riders add additional benefits to the Insurance Policy
- Policyholders pay an extra premium for each Rider
Life Insurance Policy Rider:
Waiting Period
Insurance Policy: Riders
The period of time before the Rider will be activated
(Usually about 90 - 180 days)
Life Insurance Policy Rider:
Expiration
2 Parts
Insurance Policy: Riders
- When a policies Rider is no longer available to be activated
- Only available during the Insured’s “working years”
(Usually between age 60-65)
What are the 3 Kinds of “Disability Riders”?
Insurance Policy: Riders
- Waiver of Premium / Waiver of Cost of Insurance
- Disability income rider
- Payor rider
Definition:
Waiver of Premium
Insurance Policy: Disability Riders
Most common type of Rider
If disabled, the “Waiver of Premium” rider will pay the premiums for the duration of disability
Key Points:
Waiver of Premium
6 Parts
Insurance Policy: Disability Riders
- Waives Premiums is the insured is disabled
- Insured pays Premiums during the waiting period
- Company pays Premiums after waiting period
- Premiums paid during waiting period are reimbursed
- Insured pays premiums when disability ends
- Standard “Waiting Period” and “Expiration”
Definition:
Waiver of Monthly Deductions
3 Parts
Insurance Policy: Disability Riders
(a.k.a. “Waiver of Cost of Insurance”)
- “Waiver of Premium” rider but for Flexible Premium Policies
- Suspends the monthly deductions from the cash account
- Standard “Waiting Period” and “Expiration”
Definition:
Disability Income Rider
3 Parts
Insurance Policy: Disability Riders
- Provides a monthly benefit check, if the Insured becomes disabled
- Typically based on the policies Death Benefit
(Industry standard is 1% of the face value) - The number of payments will depend on the policy’s definition of “disabled”
Definition:
Payor Benefit Rider
3 Parts
Insurance Policy: Disability Riders
(Typically for Juvenile Policies)
- Premiums are covered if the (adult) payor dies or becomes disabled
- Premiums are covered until the minor reaches a stated age (usually 18 or 21)
- This rider adds insurance on the payor so medical underwriting may be required
Definition:
Accelerated Benefits Rider
2 Parts
Insurance Policy: Accelerated Benefits Rider
(Standard Coverage for Life Insurance Policy)
- Allows the Policyholder to use the Death Benefit proceeds during their lifetime
- Must have a limited life expectancy or meet certain medical circumstances
Qualifying Events:
Accelerated Benefits Rider
(Medical Circumstances)
5 Parts
Insurance Policy: Accelerated Benefits Rider
- Terminal Illness
(Death expected within 24 months) - Serious Illness resulting in a reduced life expectancy
(i.e. Cancer) - Long-term Care Needs
(Inability to perform “Activities of Daily Living) - Catastrophic Illness requiring extraordinary treatment
(i.e. Organ transplant) - Admitted to Hospice or (Permanent) Nursing Home
Key Points:
Accelerated Benefits Rider
4 Parts
Insurance Policy: Accelerated Benefits Rider
- Payments range from 25%–100% (of Death Benefit)
Depends on the Face Value, Contract Terms, and State of Residence - Payments will be reduced by any outstanding loans
- Death Benefit is reduced by the amount of the payment
- Written Disclosure MUST be given to Insured
How Accelerated Payments may affect the Policy/other Benefits (i.e. Medicaid
Definition:
Other/Additional Insured (Term) Riders
2 Parts
Insurance Policy: Other/Additional Riders
Provide convertible term insurance for a spouse (or immediate family member) of the Insured
* Spouse Rider
* Children’s Rider
* Family Rider
* Other (business associates)
The Coverage provided by the Rider is often convertible to permanent coverage
(during the effective period of the Rider)
Definition:
Exchange Privilege Rider
3 Parts
Insurance Policy: Other/Additional Riders
(a.k.a. “Substitute Insured Rider”)
- Used to change the insured person to a different person
- Typically used if a business owns the policy (and is the beneficiary) for a Key Person
- Allows a change of the insured (to another employee) if the initial Insured retires/leaves the company
Definition:
Term Rider
3 Parts
Insurance Policy: Other/Additional Riders
- Adds “Term Insurance” to a Permanent Policy
- Coverage is similar to a standalone Term Policy (but has a lower Premium)
- Beneficiary would receive the Term Rider and the underlying policy’s Death Benefit
Key Points:
Term Rider
2 Parts
Insurance Policy: Other/Additional Riders
Available Policy Types:
1. Level
2. Decreasing
3. Increasing
Subject to standard Term Expirations
1. Specific Age
or
2. Specific # of Years
Definition:
Return of Premium Rider
3 Parts
Insurance Policy: Other/Additional Riders
- Increasing Term Insurance Rider
- Premiums are not actually returned to the Insured
(Rider pays an additional Death Benefit equal to the amount of Premiums paid) - Limited Duration / Subject to standard Term expirations
(Death must occur while rider is in force to receive benefit)
Definition:
Accidental Death Benefit Rider
(ADB)
4 Parts
Insurance Policy: Other/Additional Riders
(a.k.a. “Double/Triple Indemnity”)
- Pays an extra benefit if the insured dies due to an accident
(Insured must die within 90 days of the accident) - Death Benefit is 2-3x the face amount
- Expires around age 60-65
- Does Not Cover:
Illness/Disability/Suicide
War/Commission of Crimes
Aviation Activities (other than commercial flights)
Definition:
Accidental Death and Dismemberment
(AD&D)
4 Parts
Insurance Policy: Other/Additional Riders
- Supplementary coverage that can be added to traditional policies
- Principal Sum - 100% of Benefit (Death (within 90 days) due to accident)
- Capital Sum - 50% of Benefit (Dismemberment)
- Multiple Dismemberments - Max. paid is the “Principal Sum”
Examples of Dismemberment:
* Loss of legs, arms, feet or hands
* Loss of sight
* Loss of hearing
* Paralysis
Definition:
Guaranteed Insurability Rider
(GIR)
2 Parts
Insurance Policy: Other/Additional Riders
- Attached to a permanent insurance policy
- Adds additional coverage up to a specified amount
Other Names:
* Guaranteed-Insurability Option (GIO)
* Guaranteed-Insurability Benefit (GIB)
Key Points:
Guaranteed Insurability Rider
(GIR)
4 Parts
Insurance Policy: Other/Additional Riders
- Allowed at certain intervals/ages (typically between ages 25-40)
- Allowed for certain life events (Marriage, Birth, Adoption, etc.)
- NO Medical Questions/Exams
- Cost is based on the insured’s attained age
Definition:
Cost of Living Rider
3 Parts
Insurance Policy: Other/Additional Riders
- Premium is based on attained age
- No additional proof of insurability required
- Based on the Consumer Price Index (CPI)
Inflation Increases - Death Benefit increases
Inflation Decreases - Death Benefit stays the same
Which Riders may affect the amount of a policy’s Death Benefit?
6 Parts
Insurance Policy: Riders
- Insured Term Rider
- Return of Premium Rider
- Accidental Death Rider
- Accidental Death or Dismemberment Rider
- Guaranteed Insurability Rider
- Cost of Living Rider
Definition:
Long-Term Care Rider
(2 Different Approaches)
Definition / 2 Approaches
Insurance Policy: Riders
Can be used to pay for qualified services such as home care, assisted living, or nursing home care
2 Different Approaches:
1. Independent Approach - Benefits paid will not affect the policy’s face amount/cash value
(Independent from the policy)
2. Integrated Approach - Benefits paid are directly linked to policy’s face amount/cash value
