9 Common Life Insurance Riders that Physicians Should Know

When it comes to choosing a life insurance policy, doctors are in a challenging position.

Most physicians’ families rely on their income to provide for basic living expenses as well future savings. In the event that a physician passes away, life insurance provides a financial safety net for their loved ones.

However, because physicians tend to be high-earners, salespeople trying to sell bloated, overly expensive life insurance policies also target them.

Understanding the value of different life insurance riders can help physicians make informed decisions about their insurance coverage.

Life insurance riders are additional coverage provisions that get purchased along with a basic policy.

While some riders are free, others will increase the monthly cost of your policy. Riders are a strategic way to customize your life insurance to meet your unique needs. However, not all riders are appropriate for all physicians.

The riders that are most financially appropriate for you will depend on your coverage from other forms of insurance, your medical history, your family’s financial resources, and your long-term savings and investments.

Here are nine of the most common life insurance riders:

Waiver of Premium Rider 

For an additional fee, physicians may add a waiver of premium rider to their policy. This allows the policyholder to avoid insurance premium payments. In the event that he or she becomes critically ill, seriously injured, or disabled.

This type of rider becomes known as a disability waiver rider.

With this rider, a policyholder who suffers a qualifying disability can keep their policy in effect. Even if an illness or injury prevents them from earning income and paying their regular monthly insurance premiums. If and when the policyholder recovers from their disability, the policy insurance premiums will get reinstated.

Waiver of premium riders typically includes a waiting period of at least 6 months. Which must elapse after the onset of a disability before the policy’s insurance premium will get waived. To qualify for a waiver of premium rider, you have to follow strict conditions. A policyholder must meet certain health and age requirements.

Serious pre-existing conditions will get permanently excluded from the coverage of the rider. Additionally, most riders include very specific definitions for “disability.”

While some waivers may go into effect if the policyholder is too sick or injured to work in their profession of training and expertise, other versions of this rider may differ. For instance, they may only waive insurance premiums if the policyholder becomes too disabled to work at all in any profession.

It is important to note that a waiver of premium rider does not offer income replacement in the event of a disability. It simply eliminates the cost of insurance premiums while keeping the policy in effect.

Read this: How to Avoid or Overcome Life Insurance Fraud

Term Conversion Rider & Extended Convertibility Options

A Term Conversion Rider allows the policyholder of a term life insurance policy to convert their policy into a permanent policy (also known as a lifetime policy) by a specified deadline.

By definition, they only designed term life insurance policies to last for a designated period of time.

However, as the policy nears its guaranteed fixed price termination date, many policyholders may decide they wish to continue their life insurance coverage. For example, by converting to a permanent policy.

A Term Conversion Rider can get added to a term life insurance policy at the time of purchase. Often for no additional cost. This rider guarantees that you have the option to convert all or some of your policy benefits into a permanent policy by a designated date, with no additional medical underwriting.

This feature allows a policyholder to continue to receive coverage based on their original health rating from the time they first purchased their term policy. Regardless of any health conditions that may have arisen since the policy’s effective date.

This guarantee is extremely important for anyone who has developed a serious health condition such cancer, heart disease, or diabetes. Because it locks in coverage for a lifetime.

If you wanted to purchase a policy after being diagnosed with one of these conditions, your options for life insurance would be slim to none.

While a basic conversion rider does let you keep your future coverage options open, there are specific timeframes by which you must request a conversion.

Examples

While the exact requirements may vary by insurance company, the following are examples of conversion periods for basic term conversion riders:

• First, for a 10-year term policy, the policyholder must convert with the first 7 years
• Second, for a 15-year term policy, the policyholder must convert within the first 12 years
• Third, for a 20-year term policy, the policyholder must convert within the first 15 years
• Fourth, for a 30-year term policy, the policyholder must convert within the first 20 years

Note, the examples above show far more flexible time frames than many carriers offer for term conversion riders.

In fact, many highly-rated carriers only allow policyholders to convert within the first half of their policy time frame.

For example, an insurance company may only allow you to convert within the first ten years of a 20 year policy. Or even the first ten years of a 30 year policy.

Conversion Extension Riders

For policyholders who wish to preserve the option to convert their term policy until beyond even the basic conversion periods, there are also conversion extension riders. Furthermore, for an additional cost, the conversion extension rider allows policyholders to extend their opportunity to convert their policy.

For example, while a basic term conversion rider on a 15-year term policy may require the policyholder to convert their coverage within the first ten years of the policy, a conversion extension rider would allow the policyholder to decide within the first 12 years of the policy (or until the policyholder reaches the age of 70, whichever comes first).

They must purchase a conversion extension rider with the original policy. It cannot get added on later. This extension rider is usually very low cost for shorter term policies and well worth the price to add the additional years.

Many of them provide an extension for the entire duration of a policy. Even as long as 30 years.

Accelerated Death Benefit Rider

An Accelerated Death Benefit Rider is a special provision that allows policyholders to access a portion of their policy’s death benefits while they are still alive. In the event that they become diagnosed with a terminal illness.

This common policy addition is usually available at no extra cost. Accelerated death benefits will reduce the amount of money paid out to beneficiaries as if it is an advance on the future death benefit.

There may be a limit on the amount of accelerated death payouts that policyholders may receive while still alive.

Typically, accelerated death benefits are not subject to income tax. Although, in some cases, the payouts may be subject to fees and interest.

In order to qualify for early payouts, the policyholder must provide medical certification that they are suffering from a qualifying condition.

Accelerated Death Benefit Riders may have different names depending on the provider. Or you may be able to choose between different types of Accelerated Death Benefit Riders specifically related to terminal, critical, or chronic illnesses.

Let’s explore two common variants on the Accelerated Death Benefit Rider. The Critical Illness Rider and the Chronic Illness Rider.

Critical Illness Riders

A Critical Illness Rider is a type of accelerated death benefit rider which pays out benefits while the policyholder is still alive, in the event of a critical illness diagnosis.

Moreover, a Critical Illness Rider will define specific conditions that qualify as a critical illness. Commonly covered diagnoses include stroke, kidney failure, ALS, and certain types of cancer.

The accelerated payouts from a Critical Illness Rider can be used at the policyholder’s discretion. These benefits go toward medical costs or basic living expenses.

Accelerated payouts get taken from the value of the policy’s death benefit. Then the remaining value becomes disbursed as a lump sum to the beneficiaries if the policyholder passes away.

Note: A Critical Illness Rider gives the insured individual the choice to accelerate their benefits in the event of a serious illness. If the insured opts not to collect early benefits, they can maintain their traditional benefit for the policy beneficiaries.

Related: What Doctors Need to Know About Critical Illness Insurance

Chronic Illness Riders

Similar to a Critical Illness Rider, a Chronic Illness Rider is another provision offering accelerated death benefits in the event of a serious medical diagnosis.

A Chronic Illness Rider allows the policyholder to receive benefits from their policy while still living. In the event that they suffer a disabling illness that prevents them from performing at least two of the six Activities of Daily Living (ADLs).

The six ADLs are eating, bathing, getting dressed, using the bathroom, transferring, and continence.

Long-Term Care Rider

Doctors who do not wish to purchase separate long-term care coverage have the option to add a Long-Term Care Rider to their life insurance policy.

Long-term care (LTC) refers to personal or custodial care for individuals who need help with basic daily activities. Such as dressing, bathing, eating, using the restroom or moving around a home. Long-term care includes support provided to an individual either in their home or in a facility. Such as a nursing home, and the cost of long-term care may not get covered by health insurance.

A long-term care rider allows the policyholder to receive accelerated payouts from the death benefit if they require long-term care. These benefits may get funded with a lump sum payment or installments. Then any unused LTC money gets paid out in the policy’s death benefit.

If you’re interested in bundling your long-term care planning with your life insurance, ask your financial consultant about life insurance policies with an LTC rider.

If you already have life insurance, it may be possible to add an LTC rider to your existing policy.

Accidental Death and Dismemberment Coverage

An Accidental Death and Dismemberment Rider (AD&D) provides an increased benefit. In the event that the policyholder suffers an accidental death or dismemberment.

In the event of the unthinkable, an AD&D rider could provide up to double the payout. However, pay close attention to the fine print, as these riders often include very restrictive language.

In a typical AD&D rider, if you die as a result of an accident, the insurance company will pay up to twice the amount of the original death benefit.

These riders include very specific language defining what events qualify as an accidental death. AD&Ds typically cover drownings, homicide, falls, machinery accidents, traffic accidents, and exposure to the elements.

There are also restrictions relating to when the death can occur in order to qualify for AD&D benefits.

Examples

For example, if the policyholder passes away from injuries related to an accident more than six months after the incident, they may not qualify for the larger payout.

The second portion of an AD&D rider relates to increased benefits in the event of dismemberment. In the event that a policyholder with an AD&D rider loses a limb (such as an arm, leg, foot, hand, or fingers). Or the loss of use a body part (such as paralysis, loss of eyesight, or loss of hearing). The policy will pay out additional benefits while the insured individual is still living.

An AD&D rider is not an accelerated death benefit rider. Meaning the additional payouts received in the event of a dismembering accident will not reduce the death benefit paid out to the policy’s beneficiaries.

However, policy language related to dismemberment coverage can also be exclusionary and restrictive.

For example, some policies may pay out different amounts depending on how many limbs one lost in an accident.

The specific terms of AD&D riders can vary significantly between insurance companies. Therefore, pay close attention to the specific situations that do and do not have coverage.

Child Protection Rider

Another rider choice offered by many life insurance companies is the Child Protection Rider (also known as a Child’s Life Insurance Rider).

For an additional cost, Child Protection Riders offer value in two key ways. First, a financial cushion in the event that a child passes away. Second, when a child ages out of coverage, the policy can get converted into a permanent insurance policy as a gift for your child.

First, the Child Protection Rider offers a death benefit in the event that a child of the policyholder passes away. A child’s death is an unparalleled loss. Nonetheless, should the worst-case scenario occur, this rider is designed to offer financial support for parents during a time of unimaginable grief.

A Child Protection Rider can cover funeral expenses, hospital bills, and provide a degree of financial support if the parents need to take time off of work to grieve.

Coverage

Fortunately, the vast majority of policyholders will never need to use the benefits provided by a Child Protection Rider. Each individual rider will specify a time frame of coverage, and most children age out of coverage in their early to mid-twenties.

At this point, the policyholder usually has the option to convert their Child Protection Rider into a permanent life insurance policy.

The Child Protection Rider serves as a great way to provide protection for children. Without having to go through a separate process to secure coverage for them individually.

To determine which life insurance riders will offer you the most value and protection, consult with a fiduciary financial planner. Our trusted financial planners can help you take stock of your life insurance needs, make sense of the fine print, and evaluate different policy types. To make sure your life insurance provides all the necessary coverage without the unnecessary fees and charges, make an appointment to talk with an advisor today. 

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