Maximizing Life Insurance Mileage: The Role of Riders

Life insurance riders amend your life insurance coverage to address specific needs or concerns. 

Standard features on life insurance 

Life insurance is best known for its death benefit -- that's the amount paid out to your beneficiaries after you pass away. Certain types of life insurance also have a savings component called cash value. Depending on the policy rules, you may be able to withdraw or borrow against that cash value while you are living. Many policyholders use this feature as an emergency fund or as supplemental retirement income. 

Popular life insurance riders 

Below are five common life insurance riders you can use to customize your coverage. Know that the riders available for your policy will vary according to where you live and who your insurer is.

Term rider 

A term rider converts a permanent life policy into a hybrid form of coverage. This makes more sense with a brief explanation of how term life differs from permanent life. Term life insurance covers you only for a defined period of time -- say, 30 years. It's an affordable form of life insurance that protects younger families before they achieve financial security. Permanent life insurance accumulates cash value and does not expire as long as you keep paying the premiums. Permanent life is also more expensive. The premiums can be five to 15 times higher than term life premiums.

The high price of permanent life insurance limits the size of the policy you can afford. A term life rider addresses that by increasing the death benefit on a permanent life policy temporarily. Say you can afford permanent life insurance with a face value of $100,000. You could add a term rider that raises the death benefit to $1 million for the next 20 years. After 20 years, the death benefit reverts to $100,000. This would be far more affordable than $1 million of pure permanent life insurance. The term rider basically provides a high death benefit when you need it most, combined with life insurance that never expires.¹ 

Accelerated death benefit rider 

An accelerated death benefit rider gives you access to some of your policy's value (beyond accumulated cash) while you're living. Critical illness and long-term care riders are types of accelerated death benefits. Basically, if you meet certain conditions as your policy defines, you can cash out some of your death benefits early.² 

Disability income rider 

A disability income rider pays you a monthly benefit if you are unable to work due to disability. Often, a disability rider will also specify a waiting period between the injury and when the policy starts funding your monthly income.³

Cost of living adjustment (COLA) rider 

A COLA rider adjusts your death benefit according to changes in the Consumer Price Index. That keeps your death benefit from losing value to inflation over time.⁴ 

Accidental death benefit rider 

The accidental death benefit rider increases your death benefit if you die in an accident. This feature might interest you if you work as a stuntman, police officer, or firefighter, for example. 

Read the fine print

Life insurance riders can be complicated in terms of the benefits you receive and the added premiums you will pay. Read the contract language carefully and question anything you don't understand. It's also smart to consult with a trusted advisor (who's not your life insurance agent) before adding a rider to your life insurance.