From Riders to Exclusions and Limitations

Signing on for a life insurance policy can be a confusing thing. You want to make sure that you’re obtaining the right coverage so that in the event of your death, your family won’t be overwhelmed by financial burden. But policies can contain cryptic and confusing verbiage. You may be hesitant to sign away your life on a document when you’re not entirely sure what it says. Like any contract, insurance policies are wrought with fine print, some in your favor and some against it. You have to know which addendums in the policy will nullify your coverage and whether or not you can add them back in for a slightly higher premium. Riders, exclusions, and limitations are all means of which your coverage can be altered. It is crucial that you understand what they are and how to negotiate your policy in favor of the best coverage for your lifestyle.

What is a Rider?

A rider is an additional piece of coverage not originally stipulated in your insurance policy. They provide extra benefits in addition to the basic coverage, rounding out your policy such that it fits your unique needs. Because they are suited for the individual, an extra premium is charged for each rider added on to your policy. The additional premium is typically affordable because riders require very little in the way of underwriting. Thus, they can be used to your advantage for a variety of situations. There are several commonly found life insurance riders. Some of the riders allow the insured to access the death benefit before they pass away, some provide funds in case the insured becomes disabled, and some provide guaranteed and additional coverage for fixed time frames and situations.

There are riders that cater to thrill-seekers, riders that look attractive to newly married couples, riders for those with children, and riders for the elderly. Determining what riders you’d like to add to your insurance plan often boils down to what kind of lifestyle you live. Riders serve as a sort of plan B in case your original policy falls short. While nobody would like to envision a future in which they die prematurely or become disabled, the prospect of having a policy that doesn’t cover those situations is even worse.

The advantages of adding riders into your coverage are obvious; not only do you gain additional protection, but you do so at a much lower cost than an individual policy. A handful of riders catering to your specific needs will be far more affordable than taking out another policy. They also offer you increased flexibility. You can choose the terms of your insurance based on health conditions, time frames, and when and how much money you receive. Rider premiums also give you a tax benefit.

The Most Popular Riders

While you can find riders for virtually any scenario, there are several common riders that every policy-holder should know about. An accelerated death benefit rider allows policyholders diagnosed with terminal illnesses and those that require long-term care to access some of their death benefit while they are still living. They may pull funds from the death benefit in accordance with what is designated on their accelerated death benefit rider. It will reduce the final death benefit that has been set aside for when the policy-owner actually passes away, but will help the policy-owner to cover health care costs and funds required while they are incapable of working.

Likewise, the policyholder can add an accidental death benefit rider to their life insurance policy. This rider allows for an additional amount to be paid to the beneficiary in case the policyholder experiences an accidental death. It is usually written out to be the same amount as the death benefit of the policy, which is referred to as a double indemnity. There is also a slight variation to this rider known as the accidental death and dismemberment rider, which sanctions that part of the benefit can be utilized if the insured loses one or more limbs or eyesight in either or both eyes. Depending on how serious the dismemberment or blindness, the insured may access larger or smaller specified amounts.

If the policy-holder becomes completely disabled, they would benefit from having a disability income rider, which provides them with an income from the insurance company on a monthly basis for the duration of their disability or a specified time frame. Yet, if they are disabled to the point of not being able to pay their premiums in a prompt fashion, a waiver of premium rider can be helpful. This rider allows for those that are so debilitated that they can’t get their premium payments in to be able to continue to receive coverage. Usually, if someone were unable to pay his or her premiums on time, just like a usual bill, the service would be cut off. The waiver of premium rider waives the premium for the time being so that the policyholder is still able to receive insurance. The conditions of the waiver of premium rider are determined by the insurance company on an individual basis, but generally take into consideration the length of time that the disability is problematic and so forth.

Furthermore, a policyholder that is in bad health may have trouble finding life insurance at a desirable premium because insurance agents want to avoid risk. In that case, it can be extremely beneficial to have a suicide. It may be a provision that only exists within the first year or two of receiving the claim or it may apply throughout the entire duration of the policy. The insurance company doesn’t want to be used as a means of security to your family if you are toying with the idea of suicide.

Although the aforementioned exclusions are all pretty obvious, there are a couple that are sometimes outlined that policyholders should watch out for. For example, most policies no longer list it as an exclusion, but there used to also be an act of war exclusion that strips you of your claim if you die in a war zone. For someone serving in the military, this exclusion would be worth noting. Even though it is no longer standard, you should confirm it with you insurance provider before the policy is implemented. Some policies denote an aviation exclusion, which covers you in a commercial aircraft, but drops you when you ride as a passenger on a private aircraft.

Probably the most glaring exclusion to insurance policies is known as a dangerous activity exclusion. This exclusion can be tricky because it is so open to interpretation. The dangerous activity exclusion notes that there will be a drop of coverage for those that engage in risky behavior. Usually the activities deemed risky will be listed. This doesn’t mean that you can’t enjoy high-risk sports and obtain a faithful insurance policy at the same time. You may have to do some digging to figure out the best course of action for your particular circumstance.

For example, most insurance agents will allow you to add in the activity under your coverage for a steeper premium. You can specify the length of term to your needs. If you know that you will only skydive once within a six month period, you may add an addendum into your policy covers your skydiving activity at the higher rate, but for only 30 days. That allows you to drop down to a lower premium after you’ve sewed your wild oats.

Likewise, occasionally a group sport organization will have a type of insurance that lists all of their participants. So sometimes you don’t even need individual coverage on your own insurance to gain benefits. If you have to sign a liability waiver before participating in the sport, then they aren’t covering you under their insurance plan and you should acquire some type of insurance before you leave home.

There are also exclusions added to the policy that work in favor of the insured rather than watching the insurance company’s back. The incontestability clause is intended to prevent the life insurance company from refusing to pay out a particular claim because they realize that they were given false information about the policyholder. For example, many life insurance policies require you to take a medical underwriting to determine what your premium will be. If your underwriting indicates that you’re in better health than you are and the policy is accepted, the insurance company usually has two years to identify the mistake in your underwriting and drop the coverage or adjust your premiums. However, if two years have passed and the mistake has gone unnoticed, the incontestability clause stipulates that they can no longer drop your coverage or increase your premium for receiving false information. Another exclusion that favors the insured is the grace provision. The grace provision is put in place to ensure that coverage is still granted if a premium is up to a month late as a result of the policyholder’s death.

It may seem like there are a lot of rules to follow when obtaining your policy, but riders, exclusions, and limitations are intended to make an otherwise sterile document something you can use in your everyday life. Having these choices allow you to customize your plan to your individual taste, even if it’s a bit of hassle to negotiate.