Convertible term life insurance is a type of policy that is able to be converted from temporary life coverage to permanent coverage either during your specified term or prior to your 70th birthday, whichever comes first ( check your policy for specific dates). This convertibility prevents the need to re-qualify when applying for permanent coverage.
Additionally, this convertibility is an indispensable insurance option that protects your beneficiaries from financial distress should you pass unexpectedly. Add-on benefits known as “riders” can also be incorporated into your policy in order to further customize your coverage.
These life insurance riders are added to your term life insurance policy and provide more coverage for possible losses of income as result of disability, terminal illness, or other catastrophic events. Riders differ by policy and insurance company, as well as their cost.
Important to keep in mind – adding a life insurance rider to a term insurance policy will raise your insurance premiums. Make sure the extra coverage is worth the price.The following riders are the most commonly available:
1. Term Conversion Rider
Simply stated, conversion term life insurance is a type of term life policy with a term conversion rider added. Since these term conversion riders are usually included automatically, these policies are regarded as convertible term policies.
As mentioned previously, a term conversion rider allows you to convert your term life insurance policy into a permanent life insurance policy without the hassle of underwriting or medical exams. Although a term life insurance policy might fit your needs perfectly when you are young, as you age, you may find that a permanent policy fits them better.
Included in most life insurance policies, this rider is extremely beneficial if you experience serious health conditions as you get older. This convertibility means the difference between you having a lapsed term policy or one that’s simply converted so that a claim will be paid.
2. Accelerated Death Benefit
This rider pays a fraction of the death benefit to you as the insured should you become terminally ill resulting in a shorter life expectancy.
Often included automatically with most convertible term life insurance policies, the accelerated death benefit rider is either free or offered at a minimal cost. It is specified in the policy how much of the death benefit will be available prior to death, and that is typically capped between $250,000 to $500,000.
3. Accidental Death Benefit Rider
This rider increases your death benefit if your death is the result of an accident. There may also be an additional benefit for dismemberment resulting in payment with the loss of sight or a limb. Your occupation and hobbies are considered when determining your premiums.
4. Critical Illness Rider
This rider provides a lump-sum payment in order to cover medical expenses and other health-related costs as a result of a critical health condition. The payment is taken from your death benefit to cover serious illnesses such as heart attack, stroke, cancer, coma, and others as specified by your provider.
Unfortunately, medical bills for a critical illness can pile up quickly and most individuals don’t possess an emergency fund substantial enough to cover such expenses. This is where adding the critical illness rider is an important move.
5. Disability Income Rider
In the event of a disability, this rider provides a supplementary income and a waiver of premium. The supplementary income provided depends on your policy’s face amount and most providers will designate a limit on the monthly benefit payment as well as how long you’ll receive the monthly benefit. Quite similar to a long-term disability insurance policy, it can be easily added to your existing policy rather than purchasing an entirely separate policy.
6. Child Term Rider
This rider provides coverage in the event of a death of a child. Even though this tragedy doesn’t result in the direct loss of income, it’s still quite the financial burden to bear for a family in mourning between taking time off from work and the funeral expenses. This rider provides significant financial assistance during a parent’s worst time.
Additionally, once your child reaches 25 years of age, the rider can then be converted into an individual life insurance policy without a medical exam.
In regards to special needs children, who are often difficult to insure, the child term rider is essential for the parent purchasing term life insurance. Speak to your independent insurance agent about the best protection available if you have a special needs child.
7. Return of Premium Rider
Simply put, you will pay significantly higher premiums so that you will receive all or part of your money back should you outlive the term of your life insurance policy.
8. Long-Term Care Rider
Similar to a long-term care insurance policy, funds are withdrawn from your death benefit to pay for your medical expenses in the event that you become chronically ill and unable to care for yourself. Additionally, you are able to use this rider should you need home health care or require a stay in a nursing home.
It’s important to keep in mind that the maximum benefit you can receive is usually just a percentage of your policy’s face amount and is then taken from your policy’s death benefit.
9. Waiver of Premium
This beneficial rider ensures that if you become totally disabled and unable to work, you will not need to pay your life insurance premiums.
Typically, most insurance providers specify that the disability needs to last six months or more before any benefit will kick in. In fact, some providers will reimburse all payments made during the waiting period.
When shopping around for life insurance, there are many factors to consider. The amount and type of life insurance coverage that you will need depends on factors such as your income, your debt, your dependents, your lifestyle, and your appetite for risk.
While this article has covered the most common types of life insurance policy riders, it is certainly not exhaustive. Truth is, there is no one-size-fits-all answer regarding whether any of the riders mentioned are right for your situation. It’s important to weigh all policy options in order to find the plan that best fits your needs.