Consideration for Adding a Term Life Insurance Rider to a Permanent Life Insurance Policy

The most common and familiar rider is the term insurance rider. When purchasing insurance, buyers may add virtually any form of term insurance—increasing, decreasing, or level—to a base permanent policy. The principal advantage to the insured of using a term rider is that the insurer issues the additional insurance on a net cost basis, without some of the fees typical of new issues. Policyowners frequently use such riders when they have a temporary need above their long-term base need or when the policyowners cannot afford to pay the premiums for a permanent policy for the full amount of insurance they need, but still wish to assure coverage for the full amount of their need.

Term riders normally provide that the policyowner can change the rider to a separate policy or convert it into a permanent form of coverage within a specified period or before a specified age without evidence of insurability. Companies differ with respect to the length of the period of coverage they will permit under the term rider. For instance, some companies limit both the coverage period and the conversion period to the insured’s age of sixty-five or younger; others will permit coverage and conversion to later ages, such as age seventy-five or older.

Two of the critical elements people seeking insurance should investigate are the current term rates charged by the prospective companies as well as these companies’ maximum guaranteed term rates. Some companies guarantee that their current term rates will never increase. However, their current term rates may be higher than those of companies who reserve the right to increase term rates, subject to a maximum, if their experience so dictates. Also, if prospective insureds anticipate that they may wish to convert term riders in the future, they should check the companies’ conversion charges, which may vary widely.

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

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