Definition of a Life Insurance Rider

Life insurance riders are additional modifications made to your life insurance policy that affect how the policy works. Life insurance riders add additional functionality to the basic policy, giving you features that would not be available otherwise.

Benefits

You receive benefits from a rider that are not available from the base policy. For example, a Waiver of Premium rider waives the premium payment due if you become disabled and cannot pay your premiums. An Early Cash Value rider allows access to most or all of the cash value in your policy starting in the first year of your policy, rather than having to wait several years for cash value to build up in your permanent policy.

Drawbacks

Riders cost money. This increases the premium, making the policy more expensive. Since part of the premium goes toward the cost of the rider instead of to the cash value, there is less premium being invested for the policy cash value. This, in turn, suppresses long-term cash value growth in cash value policies.

Considerations

Understand what you need from your policy and only purchase riders that make sense for you. For example, if your lifestyle or career increases the risk that you may become disabled, you may want to consider paying for a Waiver of Premium rider if it's available.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
• Merriam-Webster Dictionary: Rider