How do Life Insurance Riders Work?

Learn more about how life insurance riders can affect your insurance policy and rates. Find out more on the Dundas Life blog.

July 6, 2021

Life insurance requirements are rarely one-size-fits-all. Thankfully, add-ons known as life insurance riders are available that let you customize a life insurance plan to suit your unique needs.

These add-ons are called riders. While useful, most riders come at an extra cost. So, you should be mindful to add only those riders that you specifically need.

In this post, we will discuss common life insurance riders in Canada, as well as the various options available to you and your family.

Life insurance riders: quick facts

  • Riders are added extras you can buy separately to your standard policy. Adding riders will raise your cost of insurance.
  • The most common riders include wavier of premium rider, accelerated death benefit rider, living benefit rider, and long-term care rider.
  • Many riders are only triggered in special circumstances.
  • Some riders have rules about ‘under what conditions’ they can be added to the life insurance policy.

Why should I consider life insurance riders?

When you buy life insurance coverage, you will choose between different features and options. For instance, you will decide whether to go with term or permanent coverage. Then, you will select the amount of coverage you need, and pick your beneficiaries.

There are optional features — called riders — that you can select from as well.

So why consider life insurance riders in the first place?

Well, you may choose riders because they allow you to tweak the coverage as per your needs. You can get riders to extend coverage and add more flexibility to your policy’s terms and conditions. For example, the renewable term rider gives you the option to renew your term policy without any underwriting.

Adding or removing a life insurance rider?

Once you have decided on the riders you need, check if your insurer provides them. Not all insurers offer the full range of available riders. Thus, you may consider getting in touch with an independent broker such as Dundas Life to discuss your options. Our experts can help you find the coverage that is right for your unique situation, at the best price.

Is it possible to add a rider to an existing life insurance policy?

There is no one-size-fits-all answer. Whether you can add a rider depends on the type of rider you want and your health.

The best time to add a rider to your policy is at the time of purchase. A Life insurance rider can increase the coverage amount or give you greater flexibility. So, it is natural for the insurer to want to understand the cost of offering you this extra benefit. The medical exam you take as a part of the application process, along with the health questionnaire, helps underwriters to factor in this cost.

If you want to add a rider after the policy comes into effect, you will have to submit an application. Most riders can be added later on but some cannot. The insurer will ask you to take a medical exam to verify your health. This information will help them decide if they can offer you the applied-for benefit and, if yes, at what price.

Is it possible to drop a life insurance rider from an existing policy?

Dropping a rider from an existing policy is much easier than adding one. All you have to do is inform the insurer of your wish, fill out a form, and submit it. Once the rider has been dropped, the insurer will adjust your monthly premium accordingly.

Types of life insurance rider: a reference guide

Rider Name Description
Term Rider Adds extra term life coverage to your base policy.
Child Term Rider Provides life insurance coverage to your children.
Spousal Rider Provides life insurance coverage to your spouse
Parent Protection Rider Provides coverage for your parents but requires a separate rider for each parent
Guaranteed Insurability Allows you to buy additional coverage without undergoing underwriting at specific dates in the future
Accidental Death and Dismemberment (AD&D) Provides an additional payout in the event of death or loss of functions or limbs in an accident
Accelerated Death Benefit Lets you access a part of you¬r death benefit amount if you are terminally ill
Critical Illness You receive a lump-sum amount if you are diagnosed with a critical illness covered in your policy
Child Critical Illness You receive a payout if your child develops a covered critical illness
Return of Premiums You will receive the premium dollars paid into the policy if you outlive the policy term
Disability Waiver of Premium The insurer will waive your premium payments in the event of a disability
Mortgage Disability Insurance Covers all or a portion of your mortgage repayments if you sustain a disability
Extreme Disability Benefit Lets you access a portion of your death benefit amount if you sustain a permanent disability
Long Term Care Allows you to receive a part of the death benefit to pay for care while you are ill
Hospitalization Income You receive a daily payout in the event of hospitalization
Family Income Benefit Your family receives a fixed monthly income instead of a lump sum after your death
Fracture You get a lump sum payment if you sustain a fracture in an accident

Glossary: types of life insurance riders

You can add different riders to your life insurance policy, depending on your needs. We have divided them into add-ons that either boost your coverage or offer a disability benefit, critical illness benefit or some other income benefit.

Life insurance coverage riders

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Term Rider

This add-on is designed to provide additional temporary life insurance cover. A term rider is ultimately a term life policy with a much shorter-term length than the base policy.

A policyholder can stack up many term riders to ensure they have more protection when they are younger. The coverage amount reduces as different term riders slowly start expiring over the years. As the policyholder becomes more financially independent, their policy will only provide the coverage they truly require.

Using the term rider in this manner is referred to as “laddering”. This approach is useful in situations when you need more protection in the early part of your policy term. For instance, you may need a higher death benefit amount when you have a high mortgage balance.

As covered earlier, term riders last for a shorter period than the base policy. You can add a Term 10 rider or even a Term 20 rider to a 30-year term policy.

Child Term Rider

This rider provides life insurance for the child of the insured. You can include natural-born children, stepchildren, and adopted children. A single child term rider will cover all children, including those not yet born.

The purpose of the rider is to provide a small death benefit if any of the included children die while the policy is active. The coverage usually does not exceed $30,000. If the unthinkable happens, the payout can help parents cover the funeral costs, pay for counseling, or take time off work to grieve.

Your children will not need to undergo a medical test. However, some insurers may ask questions related to their health. If a child has a severe underlying condition, the insurer may refuse to cover them. So, if you have multiple children, it is possible that some may get coverage while others may not.

Generally speaking, children are covered until they turn 25. Once they are older than 25, they may choose to convert the term coverage into a permanent insurance policy.

Spousal Rider

A spousal rider gives your spouse coverage under your policy. In other words, you and your spouse will be covered under the same policy.

Compared to buying a separate policy for your spouse, a spousal rider is less expensive. For the most part, however, it offers less coverage than having two separate policies.

Parent Protection Rider

Parent protection rider provides coverage for your parents in the event of their death. Each parent requires a separate rider. The aim is to cover estate costs (such as settling debts and burial costs) after the death of your parents.

Guaranteed Insurability Rider

This rider allows you to buy additional life insurance at specific dates in the future. Such milestones may include reaching a particular age or after your policy has been active for a specific time. You may also be able to increase the benefit amount at the time of a major life event, like a marriage or childbirth. The maximum coverage you can have, however, is predetermined.

The guaranteed insurability rider could make sense for someone who does not need much coverage to begin with but may require greater protection with time. For example, a 25-year-old single woman who plans to get married and own a house in the future may find this rider useful.

While you will have to pay extra for the additional coverage, you will not have to prove insurability. This means you will not have to take a medical exam or answer health questions. Even if your health deteriorates, the insurer cannot reject your application based on this fact, while setting your new premium rate.

The guaranteed insurability rider is generally available on permanent insurance policies.

Accidental Death & Dismemberment Rider

This rider provides an additional payment if you die or lose a limb or a function (such as hearing) in an accident.

Generally, your beneficiaries receive the additional payout if you die in an accident. You, on the other hand, will receive the benefits if you are injured.

The insurer pays the benefit only if you sustain an injury or die under predefined parameters. Because of its narrow scope of coverage, this rider may not be worth the cost for most applicants. However, people with riskier lifestyles, like a dangerous hobby or job, may find it useful.

The benefit amount you get usually depends on your injury. For instance, some policies with an AD&D rider may pay 50% of the death benefit amount if you lose one function or limb in an accident and the full death benefit amount if you lose two or more functions or limbs.

Accelerated Death Benefit Rider

This rider is usually built into most life insurance policies. It allows you to access all or a part of the death benefit amount (such as 50%) if you are diagnosed with a terminal illness. The definition of terminal illness may vary from insurer to insurer. Generally speaking, it is defined as having a life expectancy of 12 months or less. This rider is also often referred to as a living benefit rider.

Receiving a cash advance on your death benefit money can help you pay medical expenses without dipping into your savings. However, you can use the money for other purposes too. You do not need to tell the insurance company how you are using the payout, nor do you need to submit any receipts. Accelerated death benefit you receive will reduce the amount that your beneficiaries receive.

Insurers generally cap the maximum cash advance that you can take at 50% of the death benefit amount or $250,000, whichever is lower. For instance, let’s say you have a $2 million life policy. You develop a terminal illness and apply for the accelerated death benefit.

If your request is approved, the maximum amount you will receive is $250,000. Upon your death, your beneficiary will receive $1,750,000.

Critical illness benefit riders

Old man in hospital bed

Critical Illness Rider

This is a variant of accelerated death benefit rider. It allows you to receive all or a portion of your death benefit amount if you are critically ill. How much money you can access and which health conditions constitute a critical illness may vary from one policy to another.

Taking money from your death benefit will lower the amount your family receives after your death.

Child Critical Illness Rider

If you have this rider, you receive a lump sum if your child is diagnosed with a critical illness covered by your policy.

The exact number and list of conditions covered vary across insurance carriers.

The payout can help parents cover medical expenses, but they are free to use it however they like.

Return of Premium Rider

Some term life policies come with an optional feature called return of premium rider. It refunds your premium dollars if you outlive the policy term. But keep in mind this rider can push up the cost of insurance significantly.
For instance, let’s say you bought a 30-year term policy with a return of premium rider at age 25.

Now, 30 years later at age 55, you are still alive. As a result, the insurer will refund your life insurance payments.

Disability income riders

Woman with prosthetic leg jogging

Waiver of Premium Rider

This rider helps ease the potential economic burdens should you sustain an injury or illness resulting in disability. If you have this rider and a disability, you will not have to pay monthly premiums. The waiver applies not only to the base policy but also to any other riders that you have taken. The definition of “disability” however can be restrictive, so read the policy terms carefully.

Disability Income Rider

This rider provides financial protection in the event of a disability. You receive monthly payments if you sustain an injury or illness resulting in disability and cannot work. The size of the monthly payment and its duration is set at the time of buying this rider. Generally, a waiting period is involved.

That is, you will start receiving payments only after a certain period has elapsed since you sustained your disability — usually 30 or 90 days.

Mortgage Disability Insurance Rider

This rider covers all or a portion of your mortgage repayments if you lose the ability to earn a living due to a disability.

Extreme Disability Benefit Rider

With this rider in place, you receive 50% of your death benefit amount or $250,000, whichever is lower, in the event of a permanent disability. SSQ offers this rider exclusively with all its term life insurance policies, at no extra cost. The insurer defines ‘permanent disability’ as the inability to perform at least four of the six daily activities without assistance. Six daily living activities are bathing, dressing, mobility, eating, toileting, and continence.

Other Riders

Long-Term Care Rider

This feature allows you to receive a part of the death benefit while you are still alive to pay for long-term care. You can use the payout to cover the costs of a private caretaker or nursing homes or other medical expenses associated with aging. Keep in mind that taking money from your death benefit means your beneficiary will receive less money than you intended.

You can take advantage of the long-term care rider if you are unable to independently perform at least two basic daily functions (such as walking, eating, or bathing).

Family Income Benefit Rider

With this rider in place, the insurer will pay your family a fixed monthly income after your death in place of a one-time payment.

Hospitalization Income Benefit Rider

It provides a fixed income for each day the insured is in the hospital. The total amount paid out is fixed, as is the number of days of hospitalization that will be covered.

Fracture Rider

With this rider in place, you receive a benefit payment if you suffer a fracture due to an accident. You can buy multiple units of fracture coverage. The size of the payout depends on the placement and nature of the fracture.

Should you get life insurance riders?

Life insurance riders offer more flexibility — but that flexibility comes at a cost. For this reason, first consider your life insurance needs carefully. Whether a rider is worth its cost or not depends on your circumstances.The best way to decide what life insurance riders you need is to speak with an independent broker such as Dundas Life about your life insurance needs. We will help you find comprehensive coverage that is affordable.

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