Insurance Policy Riders: Types & Examples

Instructor: LeRon Haire
This lesson will introduce the concept of insurance policy riders for policyholders as well as provide definitions for related terms, including waiver of premiums and monthly deductions, payor benefit, term riders, and long-term care.

Insurance Policy Riders: An Introduction

Have you ever been to the circus and noticed the net underneath the high-wire act? If so, you'll understand that the safety net exists to protect the circus members in case of an accident. An insurance rider is similar to that safety net. An insurance policy rider can be defined as an add-on to a standard insurance policy that gives extra benefits to the insured at an additional cost.

Similar to someone riding horseback, an insurance rider gives policyholders an additional lift.

These insurance riders are beneficial because the typical standard insurance policy is often 'set in stone' and leaves no wiggle room for any changes. Adding an insurance rider to a standard insurance policy allows the insured to get specified insurance products to meet specific needs. To better understand insurance policy riders, let's take a look at several related definitions, including: waiver of premiums, waiver of monthly deductions, payor benefits, term riders, and long-term care.

Long-Term Care

One item associated with policy riders is the rider for long-term care. The long-term care rider is an add-on to a standard insurance policy that is used to protect policyholders from any detriments to their health occurring over the course of their lifetime. Long-term care is typical for ailments that cause a person to have a significant change of lifestyle, such as Alzheimer's, Parkinson's, or any trouble with daily activities such as walking, eating, or breathing on one's own.

Long-term care is often chosen to avoid placing a financial burden on family members; it takes care of an individual if they have problems associated with needing long-term care.

Waiver of Premiums

The waiver of premiums insurance rider is a policy that gives the policyholder the right to have the premiums paid on their policy if they happen to become seriously disabled or ill. The waiver of premium rider is typically charged as an upfront cost for the policyholder. Some examples of events that may cause a waiver of premium to become active are a loss of limbs or body functions, any type of paralysis, or any type of illness or disability that incapacitates the policyholder for an extended period of time.

Waiver of Monthly Deductions

The waiver of monthly deductions rider is an add-on that will pay the monthly deductions while the policyholder is disabled or incapacitated. A monthly deduction is a fee made under an individual insurance policy. The waiver of monthly deduction rider eliminates (waives) the need for the policyholder to pay those deductions. For example, let's say that Doug has a monthly insurance deduction of $100 for his policy. If he meets the criteria set forth for the waiver of monthly deduction, then Doug will not have to pay the monthly $100.

The amount of time the waiver of monthly deductions rider is in effect will depend upon the age of the policyholder when they become disabled or incapacitated. Depending on the insurance organization, the policyholder may have to have been disabled or incapacitated for a minimum number of months before the waiver takes effect.

Return of Premium Rider

The return of premium rider allows term life insurance policyholders to get back either the entire amount or a portion of any premiums that were paid over the life of the policy. Obviously, this is dependent upon the insured not dying during the specified time. With the return of premium rider, a policyholder's cost is deducted to zero if the death payout is not paid. This particular rider will cause the price of the policy to increase. The return of premium rider is effective for the simple fact that policyholders do not miss out on some of the payouts because they have passed away.

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