Additional Purchase Option Riders Available in Permanent life Insurance Policies

Most commonly, insurers sell permanent policies with attached Additional Purchase Options (APOs) or Guaranteed Insurability Options (GIOs) on the lives of younger insureds. The APO gives the younger insureds who cannot afford the premiums for large face amounts the option to purchase additional insurance without evidence of insurability at specified times in the future or upon the occurrence of certain life events. The traditional pattern provides regular options every three years usually beginning with age twenty-five and ending at age forty. However, some companies start options earlier and/or may continue the options at regular or specified intervals to age sixty-five.

Most companies also provide alternate purchase options and dates based on the occurrence of certain critical life events that would normally warrant additional life insurance coverage. Most companies allow the exercise of the option in case of marriage or birth, with multiples for multiple births. Some companies also will allow exercise if and when the insured adopts a child. In most cases, the exercise of an alternate purchase option will preempt the exercise of the next regularly-scheduled purchase option.

The option amounts generally are scheduled on the specifications page of the contract and usually are equal to or less than the original face amount of coverage. In some cases, companies also specify a minimum purchase amount, such as $5,000 or $10,000.

A sizable minority of insurers automatically include a disability waiver of premium (or policy charges if a UL policy) in their new policies if the original policy included it. Many other insurers will include the disability waiver of premium (or policy charges), if requested. However, there is a great diversity in the conditions for the disability waiver of premium (or policy charges) benefit in new policies issued under an APO. The waiver may be automatic, but only if the original policy is whole life or premiums are payable to an advanced age, such as age ninety-five. In other cases, the insurer will include the waiver if the policyowner requests it but then only if the premium on the new policy is equal to or less than that of the whole life policy. In some cases, the disability waiver of premium (or policy charges) benefit is available only if the insured is not already totally disabled at the time the insurer issues the new policy. In other cases, the insurer will include the waiver if the policyowner requests it and the company consents.

In virtually all cases, insurers require the new policy to be a type of whole life or an endowment policy. However, a few companies permit the insured to purchase term insurance.

In addition to the traditional APO for young insureds, some companies now offer special APOs or GIOs in other circumstances. For example, some companies offer a GIO for the survivor to a joint life contract. Also, some companies offer GIOs or APOs with policies issued to fund business buy/sell agreements. This permits the policyowners to increase necessary coverage as business values increase.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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