Unit 5: Life Insurance Riders Flashcards
What are life insurance riders?
•benefit options to tailor a policy to the owner’s needs
•policyowners are charged an additional premium for certain types of riders
What is the waiver of premium rider?
•insured & owner are the same person
•waives premiums as long as the insured is disabled
•insured pays premium during the waiting period
•company pays premiums after the waiting period
•premiums paid during waiting period are reimbursed
•insured pays premiums when disability ends
•one of the most common types of life insurance riders
•if the policyholder becomes disabled, it will pay the premiums so the policyholder can continue to have coverage for the duration of the policy
•policy stays in force during the period of disability & scheduled policy cash values continue to be credited
•insured must be unable to work for a certain period-called the “waiting period”-before the waiver takes effect
—>the waiting period is usually 90-180 days
•if the insured is still disabled at the end of the waiting period, the company retroactively refunds any premiums paid during the waiting period
•available during the insurer’s working years & expires between ages 60 & 65
—>however, if an insured becomes permanently disabled before that age, premiums will continue to be waived for life
What is the disability waiver for flexible premium policies?
•used with UL
•cash account deductions waived
•waiting period & standard expiration
•suspends the monthly cost of insurance deductions that are made from the cash account instead of waiving the premium payment
•called “waiver of monthly deductions” or “waiver of cost of insurance”
•a flexible premium policy cannot lapse while the waiver of monthly deductions benefit is in effect & cash values continue to grow with the interest that is credited monthly
•has a 3-6 month waiting period & expires between ages 60-65
What is the disability income rider?
•pays monthly income while disabled
•benefit amount 1% of face amount
•provides the insured with a monthly benefit check if they become disabled
•benefit amount is typically based on the life insurance policy death benefit & an industry standard is 1% of the face value
•the length of time that income payments will continue depends on the definition of disability in the policy
•during the time that premiums are waived, the life insurance policy stays in force, so that if the insured dies, the beneficiary receives the face value of the policy
•cash values continue to build & if the policy is participating, dividends continue to be paid
What is the payor benefit rider?
•pays premiums if the adult payor dies or becomes disabled
•requires evidence of insurability (adult)
•usually found with juvenile policies
•states that if the person responsible for the premiums, ex. the child’s parents, becomes disabled or dies before the child legally becomes an adult, the rest of the premiums are waived until the child reaches a stated age, usually 18 or 21
•since this rider adds insurance on the payor (the adult), medical underwriting may be required
What are the types of disability riders?
•waiver of premium
•waiver of cost of insurance (UL)
•disability income rider
•payor rider
What is an accelerated benefits rider?
•advances part of the death benefit while insured is still alive
•reduces death benefit payable to beneficiary upon death of the insured
•disclosure by company of effect on death benefits & other benefits (Medicaid, etc.)
•standard coverage added to a life insurance policy that enables the policyowner to apply for an advance on the death benefit proceeds during the lifetime of the insured
•the insured must have a limited life expectancy or meet certain medical circumstances in order to be eligible for an advanced pavement of all or a portion of a life insurance policy’s death benefit
What are some of the qualifying events to request an accelerated death benefit payment?
•terminal illness, with death expected within 24 months
•serious illness, such as cancer, which would result in a reduced life expectancy
•long-term care due to the inability to perform a number of the activities of daily living
•being admitted to hospice or permanent confinement in a nursing home
•catastrophic illness requiring extraordinary treatment, such as an organ transplant
What is the reduction of death benefit (regarding accelerated benefit payments)?
•accelerated death benefit payments range from 25%-100% of the death benefit
•the payment depends on the policy’s face value, the terms of the contract, & the state of residence
•the amount of the accelerated payment will be reduced by any outstanding loans against the policy & the death benefit is reduced by the amount of the accelerated benefit payment
What is a spouse rider or children’s rider?
Provide convertible term insurance for a spouse or an immediate family member of the primary insured
What is a family rider?
Covers both insured’s spouse & children
What are exchange privilege (substitute insured) riders?
•used to change the insured to a different person
•typically used when a business owns the policy & is also the beneficiary & the insured is a key employee
•rider switches the insured to another employee if the key employee retires or leaves the company
•policy’s face amount stays the same & premiums are adjusted based on the new insured’s age & other rating factors
•the new insured is required to provide proof of insurability (submit to a medical exam)
What is a term rider on the insured?
•added to a permanent policy
•premium lower than a separate policy
•limited time for rider
•expires at a certain age or number of years
•insured can add term insurance to a permanent insurance policy
•provides coverage similar to a term insurance policy however the premium is lower than purchasing a separate policy
•in the event of the insured’s death, both the term insurance rider & the underlying permanent insurance policy’s death benefit would be paid to the named beneficiary
•3 types of term insurance riders available-level, decreasing, increasing
•term rider expires at a specified age or after a certain number of years
•the premium for the rider is paid while it’s in force
What is the return of premium rider?
•increasing term insurance rider
•amount of rider equal to all premiums paid
•death must occur while rider is in force
•the death benefit always equals the total of premiums paid for the rider & the underlying permanent policy
•does not return the actual premiums but pays an additional term insurance death benefit that equals the amount of premiums paid
•have a limited duration & expire at a specified age or after a specified number of years
What is the accidental death benefit (ADB) rider?
•death due to accident
•death must occur within 90 days of accident
•doubles or triples the face amount
•pays an extra benefit if the insured dies as the result of an accident
•sometimes referred to as “double or triple indemnity” because the death benefit is twice or 3 times the face amount of the policy
•for the extra benefit to be payable, the insured must die within 90 days of an accident
•the extra benefit is only payable if the insured’s death was the result of an accident
•usually expires when the insured reaches age 60 or 65
