Other Common Policy Riders

Question 1

The Guaranteed Insurability Rider assures what?

What are 2 other names for a guarantee insurability rider?

What are the buying limits?

Answer 1

It guarantees that the policyowner can buy additional permanent life insurance in the future even if they become uninsurable.

This rider is sometimes referred to

• a purchase option rider or
• additional insurability option rider

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.

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.

Question 2

How are Guaranteed Insurability Riders different with Universal Life?

Answer 2

1. With UL, exercising a guaranteed insurability option results in an increase in the underlying policy’s death benefit.
2. 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.

Question 3

List 6 characteristics of an Accidental Death Benefit Rider

Answer 3

An accidental death benefit rider provides an additional amount of insurance if the insured dies as a result of an accident.

1. The additional amount is typically double or triple the amount of the base policy’s face value referred to as “double indemnity” or “triple indemnity” riders.
2. An additional premium is required to buy such a rider.
3. Also, the death must occur within a stated period following the accident, such as 60 or 90 days.
4. Most insurers limit the age at which the insured policyowner may add an accidental death benefit rider (such as age 50).
5. After the insured reaches age 60 or 65, most riders expire.
6. While in effect, the additional insurance from the rider does not build any cash values.

Question 4

List 5 characteristics of a Cost-of-Living Rider (COL Rider)

Answer 4

The cost-of-living (COL) rider gives the policyowner the option to increase the face amount on his or her policy to fight inflation and is tied to an inflation index such as the consumer price index (CPI).

Common examples:

1. The COL rider on a whole life policy is typically an increasing term insurance rider.
2. The CPI-driven rate of increase is usually capped at about 5 percent per year.
3. If the CPI declines, the coverage does not decline at the same time.
4. Instead, the insurer waits until the CPI increases again. Each time a new rate goes into effect, the insurer charges a new premium.
5. Adjustable life policies often include a COL agreement.

Universal life policies, with their highly flexible terms, are not good candidates for the addition of a COL rider.

Question 5

Who does the Return of Premium Rider benefit and when?

Answer 5

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.

If the policy is canceled before the end of the policy term, no premiums are returned.

Question 6

Is Term insurance more or less expensive if added as a Rider?

Answer 6

A term rider can be added to any policy to increase the death benefit payable

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 because some of the costs associated with policy are reduced when the coverage is added as a rider and the cost savings is passed on to the policyowner.

Question 7

How do No-Lapse Guarantee occur in VUL policies?

List 3 characteristics of a No-Lapse guarantee?

Answer 7

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 a provision that is a permanent part of the policy, no additional premium charged.
• If provided as an optional rider, an additional premium is usually charged.

1. 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.
2. Provided that is the case, a decrease in policy values (due to a drop in stock prices) will not result in the policy lapsing.
3. A disclosure statement must be provided to applicants who purchase this rider clearly explaining this risk.