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Financial Literacy Part 9--Utilizing Life Insurance Riders (part 2)
This week, let’s talk about premium riders. Those are riders that somehow affect your life insurance premium.
Premium Riders
Waiver of premium: The waiver of premium rider is one which waives your annual life insurance premium if you become disabled over the life of your policy. It is important to remember that the waiver of premium rider generally only kicks in when you lose your income as a result of a qualifying disability. This keeps your life insurance policy in-force even while you are unable to make payments, which offers great protection to your family. Generally, the rider will spell out the qualifying definition of a disability. Don’t be surprised if the insurance company’s definition is the same as the Social Security Administration’s definition of total and permanent disability, since this is the standard definition used. Be sure to read your individual policy or call your insurance company if you would like to know the working nature of their waiver of premium rider.
Return of premium rider: Return of premium riders are only offered on term life insurance policies. Basically, they guarantee to the owner of the policy a return of all the premiums that are paid into the policy unless the insured dies and the beneficiary receives the death benefit proceeds. While each insurance company is different, the rider generally only pays out of the policy premium is paid on time every year for the entire term of the policy. If it lapses at any point, then the premiums would not be returned.
Return of premium riders generally add a significant extra premium to a life insurance policy. If you pay this extra premium over 10, 15 or more years then you could be losing a significant amount of investment interest or other gain. Of course, there are those who make the argument that term life insurance policies, which do not accrue cash values, offer no return other than peace of mind and a possible death benefit. A return of premium rider guarantees that you get your money back if there is no death benefit paid out. It is important that you really think about each angle and compare some hard numbers before you decide whether or not to add this benefit.
Premium Riders
Waiver of premium: The waiver of premium rider is one which waives your annual life insurance premium if you become disabled over the life of your policy. It is important to remember that the waiver of premium rider generally only kicks in when you lose your income as a result of a qualifying disability. This keeps your life insurance policy in-force even while you are unable to make payments, which offers great protection to your family. Generally, the rider will spell out the qualifying definition of a disability. Don’t be surprised if the insurance company’s definition is the same as the Social Security Administration’s definition of total and permanent disability, since this is the standard definition used. Be sure to read your individual policy or call your insurance company if you would like to know the working nature of their waiver of premium rider.
Return of premium rider: Return of premium riders are only offered on term life insurance policies. Basically, they guarantee to the owner of the policy a return of all the premiums that are paid into the policy unless the insured dies and the beneficiary receives the death benefit proceeds. While each insurance company is different, the rider generally only pays out of the policy premium is paid on time every year for the entire term of the policy. If it lapses at any point, then the premiums would not be returned.
Return of premium riders generally add a significant extra premium to a life insurance policy. If you pay this extra premium over 10, 15 or more years then you could be losing a significant amount of investment interest or other gain. Of course, there are those who make the argument that term life insurance policies, which do not accrue cash values, offer no return other than peace of mind and a possible death benefit. A return of premium rider guarantees that you get your money back if there is no death benefit paid out. It is important that you really think about each angle and compare some hard numbers before you decide whether or not to add this benefit.
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