5. Life Insurance Riders

What is a life insurance rider?

Benefit options to tailor a policy to the owner’s needs.

What is the disability rider: waiver of premium

If the policyholder becomes disabled, the rider will pay the premiums so they continue to have coverage for the duration of the policy.

What is the waiting period?

The insured must be unable to work during a certain period of time, usually 90 -180 days.

— if still unable to work at end of waiting period, premiums paid during that time are retroactively refunded

During what time period is a waiver of premium available as a rider?

During the insured’s working years and expires between 60 - 65. If they’re permanently disabled before that age, premiums are waived for life.

What is a disability waiver for flexible premium policies?

Such as in universal life, it suspends the monthly deductions made from the cash account instead of waiving the premium payment.

What are the disability waivers for flexible premium policies (universal life) also called?

• waiver of monthly deductions

• waiver of cost of insurance

Can a flexible premium policy lapse while the waiver of monthly deductions benefit is in effect?

No, and the cash value also continues to grow w/ the interest that is credited monthly.

Does the insured pay a premium during the waiting period?

Yes

What is the disability of income rider?

• Pays monthly income while disabled

• benefit amount 1% of face amount

What is the payor rider?

W/ juvenile policies, it pays premiums if the adult payor dies or is disabled. b/c it adds insurance on the payor, requires evidence of insurability (underwriting) on the adult.

What are the 4 disability riders?

• waiver of premium

• waiver of cost of insurance (universal life)

• disability income rider

• payor rider

What is an accelerated benefits rider?

Allows the policyholder to apply for an advance on the death benefit proceeds while they’re still alive. Must have a limited life expectancy or meet certain medical circumstances for an advanced payment of all or a portion of the death benefit.

What are the qualifying events for an accelerated death benefit payment?

• terminal illness, death expected w/in 24 months

• serious illness, like cancer, that results in reduced life expectancy

• long-term care b/c of inability to perform activities of daily living

• catastrophic illness requiring extraordinary treatment — organ transplant, etc.

What is the actual reduction of the accelerated death benefit?

Payments range from 25% - 100% of the death benefit. Depends on face value, terms of the contract, and the state.

— payment will be reduced by loans against the policy, and the death benefit is reduced by the amount of the accelerated benefit payment.

What is the disclosure with an accelerated benefit rider?

The applicant must receive a clear written summary that includes:

•  A brief definition of the accelerated benefit

•  The specific conditions or events that trigger payment of the benefit

The disclosure must also explain how receiving the accelerated benefit will affect:

•  Policy cash value

•  Accumulation account

•  Death benefit

•  Premiums

•  Outstanding loans and liens

What is an additional value insured rider that provides convertible term insurance for a spouse or immediate family member?

A spouse rider or children’s rider

What is a family rider?

Covers both the insured’s spouse and children. Other insured riders can be bought for certain non-family individuals, such as business associates—often convertible to permanent coverage.

What is the exchange privilege rider, or “substitute insured” rider?

To change the insured to a different person. Often used for business when the insured is a key employee. The rider switches to another employee if the person retires or leaves the company. Face amount is the same, but premiums adjusted on age or other factors of new employee.

What is a term insurance rider?

The insured can add term insurance to a permanent policy. It’s similar to a term policy, but lower than purchasing a separate policy.

What are the 3 term insurance riders available?

• level

• decreasing

• increasing

What is a return of premium rider?

• increasing term insurance rider

• amount of rider = to all premiums paid

• death must occur while rider is in force

What is accidental death benefit?

• death due to accident

• death must occur w/in 90 days of accident

• double or triple the face amount — also called double or triple indemnity

What are the exclusions of accidental death?

• illness

• disability

• suicide

• war

• commission of crime

• aviation - other than on a commercial flight

— usually expires age 60 - 65

What is accidental death and dismemberment (AD&D)?

Death benefit if insured dies of an accident or lives after severe dismemberment.

What is AD&D principal sum and capital sum?

Principal sum - amount of the rider and 100% of death benefit due to accidental death

Capital sum - dismemberment benefit and ½ of principal sum for:

• severance of legs, feet, arms or hands

• loss of sight

• loss of hearing

• paralysis

— losing 2 or more limbs = full benefit payment

What is the guaranteed insurability rider?

Attached to a permanent life insurance policy & allows the owner to purchase additional life insurance at specific intervals in the future.

— Add life insurance up to a specified amount:

• during certain age; 25 - 40

• life event — marriage, birth, adoption

• No medical questions asked

• Cost based on the insured’s attained age

What is the cost of living rider?

Based on the Consumer Price Index (CPI). As inflation increases, so does the death benefit. If inflation goes up a certain %, the death benefit goes up that %. If inflation goes down, coverage is not reduced.

— premium based on attained age w/o proof of insurability.

What are the riders affecting the amount of death benefit?

• insured term rider

• return of premium rider

• accidental death rider

• accidental death and dismemberment rider

• guaranteed insurability rider

• cost of living rider

What is the long term care rider?

Two approaches:

1. Independent approach - LTC benefit as independent from the life policy and doesn’t affect the face amount or cash value.

2. Integrated approach - links LTC benefits paid to the face amount and/or cash value.

Long term care rider:

• advance of the death benefits while insured is living

• percentage of face amount each month

• may pay for home care, assisted living, and nursing home care

• reduces death benefit payable upon death