Ways an Insurance Rider Can Save you Money

Insurance is a tricky subject to talk about. Nobody likes to imagine a health crisis or major accident but we need to prepare for emergencies! At the same time, not everyone’s risks and needs are the same.

Most people understand having no insurance at all when disaster hits is no good. But do you know how to make sure your policy is best for you? This is where insurance riders come into play.

Able to help a person customize their life insurance plan, these optional add-ons can help shore up any weaknesses in your plan. If you’re curious to know more, read on!

Insurance Rider Basics

As with most topics where finances and legal documents meet, insurance riders can get complicated. However, the basics aren’t all that hard to grasp.

When you get a life insurance policy, it is only going to pay out in specific instances. Unfortunately, there are some relatively common instances where a policy may not pay out by default when a person could really use the help.

For example, sometimes the terminally ill cannot receive payment from their policy to help pay for care. While it’s less common than it used to be, there are still policies that only pay out when the holder dies.

This may help with funeral expenses and your financial well-being once you’re gone but it can make a person’s final months immensely more complicated than it needed to be with the proper insurance rider.

Insurance riders essentially target specific financially difficult situations like this and help prevent you from having to deal with them. While this is often at additional cost, that isn’t always the case (and for many can be worth the extra cost regardless).

Rider cost is also regulated to help prevent exploitation. In the United States, riders cannot cost more than 100% what you’d pay for the base product. This helps prevent customers from being nickeled and dimed.

Some Important Terms

There are a few terms you should understand when looking over your life insurance policy and any associated riders:

— Critical Illness: Broadly speaking, these are life-threatening illnesses that many riders allow your insurance to help cover while you’re still alive. Just remember to actually read over your policy. Not every “life-threatening” condition will necessarily be covered.

— Terminal Illness: A terminal illness, at least as defined for the purposes of insurance, is one in which the afflicted is expected to die in 12 months or less by a physician specializing in the condition. This doesn’t mean you must die in that timeframe, but it must be the expectation of a medical professional in the field.

— Chronic Illness: Chronic illnesses are illnesses that you are expected to suffer from for more or less the rest of your life. Common conditions that may qualify for relevant riders include HIV/AIDS, diabetes, and more.

Remember that the above is written with broad strokes and you should always read the specifics of whatever policy and riders you are signing up for. As a general rule, the more narrowly a policy is defining terms, the less you should be paying.

If you’re ever confused by a term in a policy, ask for clarification. Even better is getting help understanding a policy from a third party, such as a financial or legal professional, if you can afford it.

Common Riders

There are a few common riders most people should consider when deciding what life insurance policy they’re going to go with.

One that’s often free with modern policies is what’s called an accelerated death benefit (or sometimes a living benefit) rider. This is a rider that helps with the issue we mentioned earlier.

Accelerated death benefit riders let you take out money while alive if you’re diagnosed as terminally ill. You may be able to take out the entire payout or only a portion, but it can seriously help ease the burden and stress of terminal illness.

More generally, accelerated riders sometimes allow you to receive payment for other conditions. One example is a chronic illness rider. This will allow you to receive payment if you are afflicted with a chronic illness.

Chronic illness riders usually require you to be seriously affected by your illness to qualify. Generally what allows a person to qualify is being unable to do at least two of the following without aid:

— Bathe

— Use the bathroom

— Maintain continence

— Dress

— Eat

— Transferring (moving in and out of bed, into a wheelchair, etc.)

Another common rider is what’s known as a waiver of premium rider. This rider lets you stop paying your insurance premiums if you become disabled. Just make sure you fully read the policy as sometimes “disabled” is defined narrowly.

Often cheaper than a long-term care insurance policy, a long-term care rider is fairly self-explanatory. This rider allows your insurance money to go to paying for long-term care in the event you begin to need it.

Just note this can slowly drain what your beneficiaries will receive as you’re gone, as it’s usually a consistent monthly expense. At the same time, if you’re going to need the care, it can be a good idea to ease that financial burden unless you have the savings to handle it.

Targeted Riders

Some riders are better for targeting people specifically at risk of having to face what they insure against. While it can be a bit grim to consider, most of the above riders cover issues conceivable for anyone to deal with later in their lives.

If you don’t die of injury, you will eventually see your health on a slow decline. That’s just the basic science of getting older and general human health. However, other riders are more targeted than those described above.

Guaranteed insurability riders are the perfect example. These insurance riders guarantee you will periodically be allowed to purchase additional coverage for your policy.

This type of rider is great for those with health risks in their family. Every 3 to 5 years (usually until you are 40), you will be able to update your policy’s coverage.

The real benefit of the rider is that you don’t need a medical examination. As the name suggests, it is guaranteed you can improve your policy, regardless of health changes.

Term conversion riders allow a term life insurance policy to be converted in part or full (depending on the specifics of the rider) into a permanent policy. Importantly, remember that term policies don’t pay anything if they expire. There’s no refund either.

This type of rider is usually a good idea if you’ve experienced a decline in health but aren’t confident you are going to die before your term expires. The temporary nature of a term policy means your family could seriously lose out if you live longer. That’s an incredibly stressful place to be, especially while in poor health.

Just remember that not all term conversion riders allow you to keep every aspect of the old policy in place that you may want. Make sure the permanent policy will still be worth what you’re paying for it if you decide to convert it.

Do You Need Riders?

All this talk about riders may have you wondering whether you really need any of them. Most riders cost extra so it’s a reasonable question to ask.

Dying is extremely expensive in the United States. Medical costs and eventual funeral costs can hit families hard.

It isn’t fair and it can blindside many. You don’t want to deal with those high costs as you or a loved one are critical in a hospital. Do yourself a favor and make sure you’re prepared now.

Does every consumer need every rider available? Of course not! That’d get very expensive very quickly.

Instead, think about what riders would suit you and your potential needs best when forming a policy. Try to be honest about your health, the risks in your life, and your family’s medical history. All of these things can impact what the best decision might be for you.

Riders Save Money

Life insurance riders can make or break a policy. They can dramatically impact how medical costs affect you and your family during what can be the hardest times in a person’s life.

The trick is to thoroughly evaluate what you need. Don’t rush to choose the first policy you see. Figure out which works best for you and go from there.

If you found this financial advice useful, we’ve got plenty more! We have useful content on a host of topics, no matter what aspect of life you could use some financial tips for.