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Planning Ahead: The Role of Guaranteed Insurability Riders

A guaranteed insurability rider builds flexibility into financial planning, which is helpful when life creates unexpected financial challenges. A guaranteed insurability option lets you increase your life insurance death benefit after the policy issues. The flexibility may allow you to weather life’s changes without significantly changing your insurance policies.

What is a guaranteed insurability rider?

A rider is an amendment that changes the terms of an insurance policy. When an insurance policy doesn’t quite meet all your needs, a rider allows you to tailor the policy to serve you and your loved ones better. A guaranteed insurability rider allows insured individuals to increase the death benefit, even if they’re older and their health has changed.

Most life insurers will require you to take a basic medical exam before they issue a policy for you. Medical examinations for life insurance involve asking you questions about your lifestyle, recording your height and weight, checking your blood pressure, and getting blood and urine samples.

Insurance companies use the information gathered during the medical exam to put you into a rate class that determines your premium amount. All of the following are true regarding the guaranteed insurability rider (except the amount of coverage may be limited):

  • You can increase the death benefit of the policy at a later date.
  • You won’t have to take a subsequent medical exam.
  • You will have to pay a slightly higher premium for it.

The primary benefit of a guaranteed life insurance rider is you can increase the death benefit without taking a second medical exam.

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Should I consider buying a guaranteed insurability rider?

No one can predict the future, but those susceptible to medical conditions or providing financial support to others may find value in a guaranteed insurability rider.

A guaranteed life insurance rider may benefit you if you have a medical condition that could worsen as you age or have a family history of chronic illness. While a medical condition may deteriorate with time, you can still expand your life insurance benefit without worrying about a medical exam.

The family breadwinner may also be a good candidate for a guaranteed insurability rider. Over time, the breadwinner’s health could decline just when they have increased responsibilities. With a guaranteed insurability rider, they can increase their coverage without worrying about being declined.

Guaranteed insurability rider: designed for flexibility

A guaranteed insurability rider may be a prudent choice for permanent life policies as they are designed to provide a benefit for the insured’s entire life. Owners of term life policies can often add a term conversion rider that allows them to convert their policy to permanent insurance with a guaranteed insurability rider at a later date. A guaranteed renewability rider on a term policy allows the insured to renew their policy without a medical exam after the term expires as long as they continue paying the premiums.

Each insurance company establishes an option date, which refers to when an insured can purchase additional coverage. The option date triggers an opportunity to increase coverage based on a particular time or a life event.

Policies may state that insureds can increase the benefit every three years or at certain ages (25, 30, 35, etc.). Some policies may allow insureds to add coverage if they marry, purchase a home, have a child or adopt one. Some insurers may offer a combination of time-based or life-event opportunities.

Insureds may have to wait a minimum number of days before being able to make changes, and the policy may put a cap on how much additional coverage insureds can buy.

Regardless of your financial needs, a guaranteed insurability rider is designed to give you flexibility if your life insurance needs change.

How life insurance riders differ

Insurance companies typically offer a variety of riders to suit your unique circumstances. Each rider provides a way to customize your policy.

A guaranteed insurability rider is the only rider that allows you to increase your death benefit without retaking a medical exam.

The following riders are designed for other purposes:

  • Accelerated death benefit rider provides funds to help pay for end-of-life care services.
  • Disability income rider helps to replace a portion of your income if you become disabled.
  • Child term rider pays a death benefit if a child dies before they become an adult.
  • Long-term care rider helps pay for nursing care expenses at home or in a facility.
  • Accidental death rider pays an additional sum if an insured dies through accidental means.
  • Waiver of premium rider will pay your premiums if you become totally disabled.

What to consider when increasing the death benefit

Several factors may come into play as you try to decide how much to increase your death benefit. The following questions may help you determine an optimal amount:

  • Do I have enough life insurance to cover my future financial goals?
  • Will my income increase in the future?
  • Do I anticipate getting married, buying a home, or having a child?
  • Does anyone rely on my financial support?
  • What are my debts vs. my assets?

Your total death benefit, including the amount of the guaranteed insurability rider, should be sufficient to cover your financial needs in the event of your death.

Cost changes over time

The guaranteed insurability rider cost is based only on your age and the amount of the insurance. The state of your health is inconsequential. While the cost of the rider won’t increase if you develop an illness, it will likely increase with every subsequent birthday.

If you think you may want to add coverage to your death benefit, it will cost less the younger you are when you purchase it.

Getting familiar with your life policy

While your life insurance policy consists of many pages, it is a legal document that contains essential information. Life insurance policies are highly detailed because much money may be at stake when someone dies. Insurers have to be sure the beneficiaries are entitled to a payout and that it goes to the proper people.

The first page of a life insurance policy is typically the declarations page. This page contains a summary of the policy, including the type of policy, term, death benefit amount, and premium. The policy will also include a list of terms along with their definitions so you can look up any term in the policy wording you’re not familiar with. It will also list the conditions under which the insurer will pay a benefit.

The terms and conditions for each rider will be listed separately from the general terms and conditions. Here are some specifics to look for under the terms and conditions of a guaranteed insurability rider:

  • The maximum age you can increase the benefit
  • The maximum amount of coverage you can add
  • The time frames or events that trigger the ability to add coverage
  • The waiting period before you can increase coverage
  • The window of time after triggering coverage to make a decision

As with any type of insurance, it’s important to review your life insurance needs at least annually.

By allowing you to increase the death benefit without retaking a medical examination, a guaranteed insurability rider protects against future insurability. This type of rider is available on most permanent life policies and some term policies. A guaranteed insurability rider is particularly valuable for people whose health may worsen. Read more about life insurance and optional riders in other articles on Healthnews.

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