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October 2016  Volume 9, Number 10        

long term care

Life Insurance Benefits Beyond the Obvious – Part II: How to Make Riders Work for You

In our last issue, we focused on how you can get a portion of your life insurance policy’s death benefits before you pass away. You can use these funds for serious illness, financial difficulties or charitable giving.

In this article, we’re looking at ways you can receive both early benefits and additional benefits from a life insurance policy, this time by using a rider. A life insurance rider helps you personalize your life insurance coverage. Basically, you’re using a mini-contract to amend a larger contract to get additional benefits at an additional cost. The cost of a rider is usually a percentage of the base premium.

Acceleration of Death Benefit Rider: Medical expenses can be steep when someone is nearing the end of life. This rider allows the policyholder to receive a portion of the death benefits early to help with expenses. The types of illnesses covered usually include:

  • Terminal illnesses, where someone is expected to die within 24 months
  • Acute illnesses, such as AIDS
  • Catastrophic illnesses that need extraordinary treatment, such as an organ transplant
  • Long-term care where the individual cannot take care of themselves
  • Living in a nursing home permanently.

Charitable Giving Riders: One of the biggest benefits of a charitable giving rider is that the policyholder can make a sizable contribution to a favorite charity without having to worry about the cost of hiring someone to handle the administration of a gift trust.

Life insurance policies usually must have a face value of $1 million or more before you can add a charitable giving rider. Insurers often add these riders at no additional cost, and premiums do not increase.

For a charity to receive the death benefit, it must be a qualified 501(c)3 charity that meets the Internal Revenue Service definition of a nonprofit organization. A few of the charitable organizations that you could donate to through a charitable gift rider include schools, churches, non-profit nursing homes, alumni associations and charitable organizations.

Critical Illness Rider: A critical illness rider pays policyholders a lump sum if they receive a diagnosis of a critical illness such as cancer or if they have a debilitating stroke. It’s often less expensive to purchase a critical illness rider than some stand-alone critical illness policies.

Disability Income Rider: A disability income rider is similar to a long-term disability insurance policy, but instead of buying two different policies, you just add a rider onto your life insurance. You could receive a monthly benefit for up to two years if your injury or illness is covered by your policy. The rider usually pays 1 percent of the face value of the contract each month, and/or will waive the monthly cost of the life insurance contract. To file a claim, you must have a permanent disability that leaves you unable to work and the disability must have lasted for at least six months.

Disability Waiver of Premium: This waiver gives you the right to not pay premiums if you become totally disabled. The policy stays in force and your heirs will still receive benefits. Make sure you read the fine print and understand what type of disability is covered, since the definition of disability differs between insurance companies.

Long-term Care Rider: A long-term care rider is much the same as a long-term insurance policy. Some of the money from the death benefit is used instead to pay for a nursing home or a private nurse for policy-holders who have a chronic illness (unlike an accelerated death benefit, which is for a terminal illness). Long-term care riders are usually easier and less expensive to purchase than long-term care policies.

Premium Rider: With a premium rider, if you reach the end of a policy term and haven’t made a claim, the insurance company will return all of your premiums.

Term Conversion Rider: Term life insurance usually is some of the least expensive life insurance because it only covers an individual for a set period. If your policy has a term conversion rider, you can convert a term policy into a permanent policy later on, regardless of your health.

Whatever life insurance policy you choose, review the available riders to determine whether the benefits you could receive are worth the additional price. And if you haven’t bought or reviewed your coverage lately, please contact us. Mortality tables, which life insurers use to calculate rates, have changed in the past several years. You might find buying additional coverage is less expensive than you expected.


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In this issue:

This Just In...

How to Cope with Health Insurance Cost Increases

Personal Accident Policies Essential for Income Replacement

Life Insurance Benefits Beyond the Obvious – Part II: How to Make Riders Work for You

Presidential Candidates’ Views on Healthcare


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