Estimated reading time: 19 minutes
Understanding your life insurance policy isn’t complicated but it does require you to familiarize yourself with the necessary life insurance terminology surrounding life insurance riders and endorsements.
Before you start exploring the different terms, the first step is knowing the type of life insurance policy you have. If you’re not sure, you may want to explore my post on temporary versus permanent life insurance.
Once you’ve figured that out, it’s essential to understand life insurance riders, endorsements, and benefits offered by your policy. Life insurance riders and endorsements add fuel to your basic policy and provide you security (while you’re alive) when you may need it the most.
Table of Contents
- About Life Insurance Riders, Endorsements and Benefits
- Breaking Down the Insured Versus Policy Owner
- Exploring Terminology for Life Insurance Riders and Endorsements
- Accelerated Death Benefit Endorsement
- Accidental Death Benefit Rider
- Additional Insured Rider
- Aviation Exclusion Rider
- Child Term Rider
- Conversion Option
- Disability Waiver of Monthly Deductions Rider
- Disability Waiver of Premium Rider
- Double Indemnity Rider
- Family Income Benefit Rider
- Free Look Period
- Grace Period
- Guaranteed Purchase Option Rider
- Long-Term Care Rider
- No-Lapse Guarantee
- Non-Forfeiture Options
- Payor Death or Disability Rider
- Primary Insured Rider
- Return of Premium Rider
- Temporary Insurance Agreement
- Travel Accident Rider
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About Life Insurance Riders, Endorsements and Benefits
Life insurance riders and endorsements are “extras” you can add to your policy to tailor it to meet your needs in life and your beneficiaries’ needs upon your death. Yes, they will increase the cost of your life insurance policy, but the extra benefit of customization may be worth the investment.
It’s important to note that life insurance riders and endorsements vary from state-to-state, life insurance carrier, and policy type. Certain states are more restrictive about types of life insurance policies and you couldn’t purchase them there, even if you wanted to. The life insurance rider and benefit options are often restrictive based on your age or health (as determined by your table rating). If you’re in a substandard risk class (below a standard rating), you may face limited choices.
Breaking Down the Insured Versus Policy Owner
Before we explore the terminology surrounding life insurance riders and endorsements, you should also understand the difference between the insured and the policy owner.
Now, I know you may be wondering, who has the final say regarding changes in an insurance policy? The answer is the owner. The owner will always trump the insured when it comes to policy decisions and changes.
So, who is the owner? The owner of a life insurance policy may be anyone of the following:
Most of the time, the owner of an insurance policy is the insured.
Sometimes spouses may be owners of each other’s life insurance policies.
Business partners may own a life insurance policy on each other, particularly during buy-sell agreements.
Why? Well, it may be mandated based on a divorce decree. It could be because they both have a vested interest in a business or shared real estate. (I’ve had several of these situations while working closely with divorced women.) Or they may have minor or college-aged children.
Anyone with shared monetary interests
This can include ex-fiancés who bought a house together, for example. (I’ve worked with several people in this situation as well.)
This is a common practice for companies who own life insurance policies on their top employees (often called keyperson or keyman coverage).
A trust-owned life insurance policy or TOLI is common for wealthy clients who use the trust to maximize their tax efficiency when it’s passed on to future generations. When the policy is owned by a trust, it should remove the proceeds of the life insurance from your estate. It also requires a legal agreement to ensure the proceeds go where you intend.
Regardless of who owns the life insurance policy, the owner has total control over the policy. I’ve run into many situations where the owner is different than the insured — it’s very common. When going into an investment or an agreement with someone else, a life insurance policy can be a good, well, “insurance policy” should anything go awry. When someone passes away, a life insurance policy helps cover the associated costs and ensures that you aren’t left responsible for their debts or holding a disproportionate amount of financial liability.
As we go through these life insurance terms, I decided to keep it simple. The insured and owner referenced throughout the life insurance rider and endorsement terminology below are one-and-the-same.
Exploring Terminology for Life Insurance Riders and Endorsements
Since I think it’s essential to go in with your eyes wide open when purchasing a life policy (or making any purchase, really), you should familiarize yourself with life insurance terminology and the types of riders and benefits available. You will make informed, wise decisions on your policies. I’ve outlined the life insurance rider and endorsement terms you need to know below.
This life insurance terminology will help you know what your life policy includes. It’s important to take away the element of surprise (which is never good when it comes to life insurance). You never want to be shocked by what coverage your policy has versus what you thought it had!
As a side note, several of the life insurance terms below don’t fall under riders, endorsements, or benefits. I thought this information was something you should know and what your life insurance policy may include.
Accelerated Death Benefit Endorsement
The Accelerated Death Benefit Endorsement (ADB) is most commonly known as a living benefit. If you become terminally ill with less than 12 months to live (length of time can vary by state and by the life insurance carrier), you can request a portion of the death benefit advanced to you in a loan. The advance is usually no more than 50% of the total death benefit, or a specified maximum death benefit amount, whichever is less. You’ll find the specific “legalese” in the contract of your policy.
You should note, your death benefit may be lower due to the Accelerated Death Benefit loan, any interest, and outstanding loans on the policy. There’s usually no additional charge for an Accelerated Death Benefit endorsement but confirm with your life insurance carrier.
Accidental Death Benefit Rider
In the event you die due to an accident or from accidental causes, your life insurance carrier will pay your beneficiary the Accidental Death Benefit amount. Your policy will indicate the amount. There’s usually a minimum, as well as a maximum age that this rider is available, and it usually terminates at one of these three triggering events:
- When your life insurance policy is terminated.
- Upon the policy anniversary, following a specific age (usually age 65). The exact age is life insurance carrier-specific, so confirm with your policy.
- Upon your written request to cancel the Accidental Death Benefit Rider.
Additional Insured Rider
An Additional Insured Rider (AIR) covers an additional insurance person on your life policy. The AIR usually has a minimum death benefit amount, which can’t exceed the base face amount of the primary insured. In other words, the additionally insured person can’t have more life insurance than the primary insured. So if your significant other is the primary insured and the face amount (death benefit) is a million dollars, you can’t be added to the AIR for two million dollars.
An AIR is a cost-effective way to add your spouse or a business partner to your policy. It’s important to note that some life insurance carriers don’t offer an AIR option. It depends on the policy and type of insurance you’re considering.
The AIR terminating events are:
- The life insurance policy is terminated.
- The primary insured dies.
- The policy anniversary following a specific age (usually age 100). This is carrier-specific, so confirm the details in your life insurance policy.
Aviation Exclusion Rider
The Aviation Exclusion Rider offers a non-rated life insurance policy for aviation-related activities. Aviation Exclusion Riders explicitly state that your policy is null and void should you die in an aviation-related accident.
The details entail:
- Travel or flight in any kind of aircraft.
- Giving or receiving any kind of aviation training or instruction.
- Intentionally leaving, falling, or jumping from an aircraft while in flight.
This rider does not apply if you’re traveling on a scheduled airline as a licensed pilot, crewmember, or passenger.
Decades ago, licensed pilots (with commercial airlines) weren’t covered by life insurance at all. I’m sure this is what ultimately led to so many professional organizations to offer group coverage in high-risk occupations such as police officers or firefighters.
Today, if you’re a private pilot (not employed by a commercial airline) or a hobbyist, you’re asked to complete an aviation questionnaire. The questionnaire is sent through your life insurance carrier’s underwriting department to determine your risk. The questionnaire includes a slew of questions such as total hours completed, the destinations you fly to, and other risk factors.
Child Term Rider
The Child Term Rider (CTR) is a life insurance rider providing term insurance coverage for eligible children. Coverage options can range from $1,000 up to a maximum of $25,000 of life insurance per child, no matter the number of policies you own. You should check the specifics with the life insurance carrier you’re considering. Determining factors may include how much life insurance the parents have on themselves (a CTR is usually no more than a third to a half of the face amount of a parent policy).
The insurance carrier assesses more significant face amounts for suitability. How can an extensive life insurance policy on a child be justified? In most cases, if a parent doesn’t have life insurance but wants a policy on their child, the request will be examined during underwriting or declined. There’s only so much coverage a child can have, whether they have a policy or coverage under a CTR.
An “eligible” child means that your child/children must fall under the following parameters:
- They’re dependent upon you for support.
- They’re living with you within your household.
- They’re going to school on either a full-time or part-time basis.
The bonus to having the Child Term Rider on your policy is that your children are automatically covered under the following parameters:
- Any child at least 15-days-old born to the insured after the CTR is in-force.
- If any child between 15 days and 19-years-old is legally adopted or becomes a stepchild of the insured after the CTR is in-force.
The CTR usually expires when the child is no longer considered a dependent, reaches age 25, or gets married. A conversion option may also be available with the Child Term Rider, allowing your adult children to get their own life insurance policy. Be sure to check with your life insurance carrier for specifics.
A Conversion Option is when your term policy may be “converted” to a permanent policy through your life insurance carrier without the additional proof of insurability. You can exchange (convert) your term policy into a new permanent policy.
There’s a maximum age for converting a term policy. The sooner (in other words, younger) you convert your policy, the less costly it will be in the long-term. The conversion age limits depend on your life insurance carrier. Some allow you to convert your term policy by your 65th birthday, while others will enable the option until your 75th. To get a better understanding of life insurance, explore my post, 7 Fact You Need to Know About Life Insurance.
Not all life insurance carriers offer convertibility options on term policies. If this is the case when you’re shopping for a term policy, I would walk away. Term policies can end up more costly in the long run.
I believe the conversion option is the most crucial benefit of term life insurance. We don’t get healthier as we get older (shocking, I know). In the event of a terminal illness or if you’re deemed uninsurable, the conversion option will still allow you to convert your term policy to a permanent policy. Because your carrier approved you when you initially secured your policy, you’re still covered.
If you were a “perfect specimen” back in the day, but maybe aren’t so perfect now, when you convert your policy, you’ll keep that “perfect specimen” rating on your new permanent policy. The new premium will go up because you’re converting a temporary policy to permanent (and because you’re now older), but the new premium won’t increase any further over your lifetime. For several of my clients, the conversion option has been a real godsend, so I believe this is the MOST critical option.
Disability Waiver of Monthly Deductions Rider
A Disability Waiver of Monthly Deductions Rider protects against loss of coverage if you become totally disabled (usually before the age of 60) for six or more consecutive months. What does that mean? Well, the life insurance carrier won’t pay your premiums. They waive the monthly deductions, including the cost of insurance (COI) charges, expense charges, and any benefits added to the policy by life insurance rider, endorsement, or amendment due after six-months of total disability for as long as your disability lasts.
The payment for the monthly deductions during the first six-months is taken from the Accumulation Value of your permanent policy. If the disability continues, these charges are usually returned to you. Be advised that this rider usually ceases at age 65 and can vary by state, life insurance carrier, and product.
Disability Waiver of Premium Rider
The Disability of Waiver Premium Rider protects against loss of coverage if you become totally disabled (usually before the age of 60) for six or more consecutive months. You need to pay the life insurance premiums for the first six months to keep your permanent policy in-force. Still, if you are considered totally and permanently disabled, the life insurance carrier may return those premiums to you.
Also, the life insurance carrier may waive a specified premium amount, which becomes due after six-months of total disability, for as long as your disability lasts. Note that this rider usually ceases at age 65 and can vary by state, life insurance carrier, and product.
Double Indemnity Rider
The Double Indemnity Rider is a provision where the life insurance carrier agrees they will provide an additional payment to your beneficiaries in the event your death occurs as a result of an accident.
The payment amount can range from double to triple the amount of your contract. What isn’t included with this rider is death by suicide, death by your own gross negligence, or natural causes (so only if you die in an accident that doesn’t fall into any of those caveats). The parameters of a Double Indemnity Rider will vary by state, life insurance carrier, and product.
Family Income Benefit Rider
A Family Income Rider allows you to have the death benefit proceeds of your life insurance policy distributed to your beneficiaries in installments versus in one-lump-sum. Again, the Family Income Benefit Rider parameters will vary by state, life insurance carrier, and product.
Free Look Period
The Free Look Period is precisely what it sounds like. You get a “Free Look” at your new life insurance policy for 10 days after you’ve received it. This review period will give you time to review and return your policy for a full refund of the previously paid premium.
The Free Look Period can vary by state and by the insurer. It’s universally the right of the policy owner to have a period of ten or more days to examine an insurance policy and, if not satisfied, return it to the company for a full refund of all amounts paid. So, if you feel like you’ve made the wrong choice, you have time to retract your investment.
A Grace Period is almost always 31 days, including the date the premium is due if your policy hasn’t lapsed. Generally, life insurance carriers are satisfied if you make payments via snail mail; just make sure the letter gets postmarked within the Grace Period. The Grace Period can vary by state.
Guaranteed Purchase Option Rider
The Guaranteed Purchase Option Rider gives you the right to purchase additional coverage at your original underwriting class without having to show proof of insurability. This life insurance rider allows you to buy options at specific dates and events occurring within the duration of the Guaranteed Purchase Option Rider. There can be a limitation on the option dates available and the parameters of the life insurance rider may vary by state, life insurance carrier, and product.
Long-Term Care Rider
The Long-Term Care Rider (LTC) gives you benefits to pay for anything ranging from a nursing home to in-home healthcare when you’re unable to care for yourself. Your cost of care is deducted from the eventual death benefit of your policy.
There’s usually a cap on the advancement amount for the LTC rider. LTC riders can get quite elaborate, especially if you purchase a standalone policy. Check with your life insurance carrier on the details of this rider, so you know what’s included or more importantly, what’s excluded!
Because Long-Term-Care benefits can be so wildly different from state-to-state, life insurance carrier, and product, I can’t stress enough to DO YOUR RESEARCH!
A No-Lapse Guarantee policy is a great product when it’s a “true” No-Lapse Guarantee policy. There are Universal Life products (permanent insurance options) that won’t lapse if you’re paying your premiums, minus any loans, during the first 10-years of the policy. The guarantee could be longer or shorter depending on the state, carrier, and the product.
After the 10-year No-Lapse Guarantee period is up, the carrier may charge additional premiums to keep the policy in-force–especially if interest rates have taken a dive. In my book, these aren’t true No-Lapse Guaranteed products. I wouldn’t present these as options to my clients.
A true No-Lapse Guaranteed product offers a guaranteed level, lifetime premium amount that isn’t affected by interest rate fluctuations. A No-Lapse Guarantee life insurance product isn’t sensitive to interest rates. As long as you’re paying the required premiums, you’ve got a guaranteed life insurance policy for life — with no surprises!
Reduced Paid-Up: The Reduced Paid-Up Option causes your policy to convert to a smaller, still in-force, and completely paid-up life insurance policy. This is an excellent option if your need for life insurance is small and you’d still like to have a little coverage in place while happily no longer paying premiums.
Extended Term Insurance: Extended Term Insurance uses the Guaranteed Cash Value of a life policy as a single premium to purchase term life insurance. Look at this option if you have lingering debt that will be outstanding for X number of years. The Extended Term gives you coverage for a specified period, but once the time is up, coverage ceases.
Premium Loan: The Automatic Premium Loan takes place when you don’t pay your premium within the Grace Period. A loan will automatically be triggered by the Guaranteed Cash Value in the policy to pay the premium due.
Payor Death or Disability Rider
The Payor Death or Disability Rider’s primary purpose is to cover monthly deductions for a policy issued on the life of a child, should you —the payor — die or become totally disabled before the age of 60, when the insured is less than age 25. This rider varies by state, life insurance carrier, and product.
A Payor Death or Disability Rider usually terminates when:
- The policy terminates.
- The insured reaches age 25.
- Upon written request to your life carrier.
Primary Insured Rider
The Primary Insured Rider provides additional Annual Renewable Term (ART) life insurance on you, the insured. There’s usually a base amount minimum and the policy must be permanent. The Primary Insured Rider face amount can’t exceed four times the base policy face amount. The rider can vary by state, life insurance carrier, and product.
A Primary Insured Rider usually terminates on the earlier of
- When the policy terminates.
- On the policy anniversary following the Primary Insured’s age 100.
Depending on your life carrier, Reinstatement of your life policy is usually allowed within 5-years of lapsing — but before age 100, if you haven’t surrendered your policy for cash.
Should you decided to reinstate a life insurance policy, note that it requires acceptable evidence of insurability (which means you’re going through the underwriting process again). The process will likely entail all medical requirements appropriate with your current age and death benefit amount.
Return of Premium Rider
The Return of Premium Rider (ROP) is a rider found on term policies. The ROP is really appealing to those who don’t like the idea of ‘throwing their money away” on insurance premiums. This rider returns the sum of all net premiums you’ve paid on the policy at the end of the term-length you’ve chosen, so there’s a zero-net cost to you. This rider varies by state, life insurance carrier, and product.
Some important notes about the ROP Rider:
- You usually can’t add other riders to the policy if you have an ROP Rider.
- ROP Riders aren’t usually available for substandard risk classes.
- There’s typically a minimum term-length requirement when you add the ROP.
- The longer the term length, the less expensive the premiums (so a 25-year term policy with an ROP is more costly than a 30-year term policy with ROP).
- You usually can’t delete the ROP Rider without terminating the life insurance policy.
Temporary Insurance Agreement
The Temporary Insurance Agreement (TIA) gives you immediate life insurance coverage during the underwriting process until the carrier approves your policy. There are often limitations on the maximum amount the TIA will cover, especially when you’re applying for more significant death benefit amounts.
During the application process, your carrier will ask you several questions to see if you qualify for the TIA. You won’t receive immediate coverage when you apply for the life insurance policy. To be eligible for you must meet three conditions:
- The carrier must receive the first premium for the death benefit you applied for.
- You must complete the application in full and obtain all required signatures.
- The insured must answer “no” to all questions on the TIA form.
Applicants often don’t understand that once the carrier approves your policy, your TIA is off the table. The life insurance you had when you signed the application and walked out the door is now gone. It’s so important to decide on any changes to your policy immediately.
Travel Accident Rider
The Travel Accident Rider guarantees that if your death occurs during a covered travel accident that your beneficiary will receive an additional travel accident death benefit as well as the stated death benefit amount in your life insurance contract.
Covered travel accidents can vary between life carriers, so be sure to confirm the coverage specifics. Travel Accident Riders usually include riding a bicycle and riding as a passenger in a common ground or water carrier. These modes of transportation may consist of golf carts, driving, or riding as a passenger in a private automobile (private doesn’t include taxis). Now that Uber and Lyft are standard transportation methods, there will likely be a change in the definition of “private passenger automobile” and the exclusions. The Travel Accident Rider will also cover you if you are traveling as a passenger on a scheduled passenger airline. This rider will vary by state, life insurance carrier, and product.
There you go — now you are familiar with all the terminology surrounding life insurance riders, endorsements, and benefits. Hopefully, you will feel more confident when you select a life insurance policy. There are many options out there to help you find the coverage you need in almost any situation!
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