Are Riders on Life Insurance Worthwhile?
When you buy a product, you’re offered extras such as an extended warranty. Life insurance is both a product and a warranty. Various add-ons are available (called riders or benefits). Let’s explore common options.
Pros: The big advantage of a rider is convenience. You can purchase additional protection without the hassle of completing new insurance applications.
Cons: The big drawback is the lack of choice. The rider comes from the same insurance company as the base coverage. There may be better or cheaper options from other companies.
Instead of buying two life insurance policies say on you and your partner—you can buy a base coverage and add the other life as a rider. This saves money because part of your premiums are used for administration charges. Since the base policy covers them, the administration charge on the rider is usually waived.
The drawback is less flexibility. The policy owner controls all the coverages. That can be a problem if a relationship breaks down or if the coverage gets cancelled because the policyowner doesn’t pay the premiums.
Another drawback is that you’re getting both coverages from one insurance company. While that’s convenient, the premiums could be lower if you bought from different companies.
Waiver of premium
If you’re unable to work due to sickness or injury, your premiums can be paid for you by your insurer after a waiting period. You can then maintain your coverage if your income drops while you’re unable to work.
If you’re disabled, you likely need income for other purposes too. Personal disability insurance often has more generous definitions, shorter waiting periods and larger benefit amounts. You may want to consider that instead.
Accidental death
If you die from an accident, the death benefit can be increased. The cost of the rider looks low but that’s primarily because the risk of a qualifying death is low.
Is there a reason for your beneficiaries to get more depending on how you die? If you want your heirs to get an extra $100,000, it may be wiser to put the cost of this rider towards a higher death benefit instead.
Critical illness
If you want critical illness coverage too, this can often be added as a rider.
Consider finding the best critical illness insurance plan for you first. That may come from a different insurance company, in which case buying from that company is a better choice.
Since riders cost money, see if you even need what’s being offered.
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