Life Insurance Riders: How Do They Work?

When browsing for life insurance policies, you probably have stumbled across add-on options called “riders” to customize your policies. But what are riders for insurance policies, and how do they work? It’s hard to know which insurance rider is best for you, especially when you don’t know what they entail, but many are not as confusing as they may sound.

In this comprehensive guide, we will break down life insurance riders and provide Canadian readers with a clear understanding of their options. Whether you’re a first-time buyer or looking to enhance your existing policy, we’ll explore the different types of riders available, including critical illness, disability, and accidental death riders.

In this article:

• What are life insurance riders?
  • How do Life Insurance Riders Work –  Riders Explained
• Types of Life Insurance Riders
  • Life Insurance Coverage Riders
  • Critical Illness Benefit riders
  • Disability Riders
  • Other Coverage riders
  • Best term life insurance riders
• Should I get a life insurance rider?
  • Are life insurance riders worth it?
• Adding or removing a life insurance rider
• Frequently Asked Questions about Life Insurance Riders

What are life insurance riders?

Life insurance is not a one-size-fits-all product: there are often areas that aren’t covered in a basic life insurance plan. Life insurance policies are used for a variety of reasons: to cover a mortgage loan or debt, to provide a financial cushion to their loved ones, or to cover the costs of their children’s education, all in case the insured passes away. With such diversity in use cases for life insurance, individuals choose different coverage amounts and periods to align life insurance policies with their needs.

This is also where riders come into the picture: riders are additional benefits that can be bought and added to a life insurance policy. They allow you to customize a policy and can provide several kinds of additional protection or benefits. Riders offer supplemental coverage to your life insurance policy and protect you from unexpected events, like a terminal illness. For example, if you have a family history of stroke, you can add a critical illness rider to ensure you receive a lump sum payment if you ever suffer from a stroke.

Instead of purchasing separate policies for critical illness, disability, or long-term care, riders allow you to bundle these coverages with your life insurance policy. This not only simplifies the insurance buying process but also helps you save on administrative costs, making it a more cost-effective solution. So although buying a rider will add to your policy’s cost, but generally, the additional premium is lower than the overall cost of your policy without any riders. Some common types of life insurance riders — like a term conversion rider, are included for free. Many riders are also only triggered to provide a benefit in certain circumstances, and some riders have rules and conditions that need to be met before they can be added to the life insurance policy.

How do Life Insurance Riders Work? Life Insurance Riders Explained

A life insurance rider is an optional feature that can be added on to a life insurance policy to enhance and customize it to better address one’s unique needs. How each rider works depends on the type of rider – some riders help with the flexibility of your policy, such as a guaranteed insurability rider, or some provide earlier benefits in the case that something happens. such as disability benefits. By consolidating your coverage under a single policy, you can enjoy the convenience of managing all your insurance needs in one place, without the hassle of multiple policies and premiums. Although it depends on the insurer, you’ll often find riders for fully underwritten term life insurance or permanent insurance. 

Types of Life Insurance Riders

The most common life insurance riders in Canada include the waiver of premium rider, accelerated death benefit rider, living benefit rider, and long-term care rider. Below is a list of common riders you’ll find as options in Canada, and what they provide. Many of these riders can be found in all types of plans, such as family life insurance plans, or individual single life policies.

Life Insurance Coverage Riders

Term Rider

• Adds extra term life coverage to your base policy.

This add-on is intended to offer more short-term life insurance coverage. Ultimately, a term rider is a term life insurance policy, but it has a significantly shorter term than the main policy.

In order to ensure they have more protection when they are younger, a policyholder can stack up numerous term riders. As different term riders gradually start to expire over the years, the coverage amount decreases. The amount of coverage provided by the policyholder’s life insurance will only increase as they grow more self-sufficient financially.

This method of using riders is known as “laddering.” When you require greater protection in the early years of the term of your life insurance policy, this strategy can be helpful. For instance, if your mortgage balance is significant, you could want a bigger death benefit sum.

Term riders have a shorter duration than the base policy. A 30-year term policy can have a Term 10 rider or even a Term 20 rider added.

Child Term Rider

• Provides life insurance coverage to your children.

This rider gives the child of the insured life insurance. Adopted children, stepchildren, and biological children are all acceptable inclusions. All children, including unborn ones, are covered under a single kid term rider.

If any of the children who are covered by the rider pass away while the life insurance policy is still in effect, a small death benefit will be paid. Typically, the coverage does not go past $30,000. In the event that the unimaginable occurs, the compensation can assist parents in paying for the burial, paying for therapy, or taking time off work to grieve.

You won’t have to subject your kids to any medical examinations. However, certain insurance companies might inquire about their health. The insurance provider might decline to provide coverage if a child has a serious underlying ailment. As a result, if you have numerous kids, some might be covered while others would not.

In general, coverage for children lasts until they become 25. They have the option to change their term insurance into a permanent insurance policy after they turn 25.

Spousal Rider

• Provides life insurance coverage to your spouse

A spousal rider extends your policy’s protection to your spouse. In other words, the same insurance will provide coverage for both you and your spouse, similar to a joint life policy.

A spousal rider is less expensive than purchasing a separate life insurance policy for your spouse. But generally speaking, it provides less coverage than having two independent insurance.

Parent Protection Rider

• Provides coverage for your parents but requires a separate rider for each parent

Parent protection rider provides coverage for your parents in the event of their death. Each parent requires a separate rider. The aim is to cover estate costs (such as settling debts and burial costs) after the death of your parents.

Guaranteed Insurability

• Allows you to buy additional coverage without undergoing underwriting at specific dates in the future

This rider allows you to buy additional life insurance at certain ages or after a specified amount of time. Achieving a certain age or after your policy has been in effect for a certain amount of time are two examples of such milestones. When a significant life event, such as a marriage or childbirth, occurs, you might also be eligible to enhance the benefit amount. However, the maximum coverage you are permitted to have is fixed.

The guaranteed insurability rider may make sense for someone who doesn’t initially need a lot of protection but may eventually need more coverage. This rider would be helpful to a 25-year-old single lady who wants to get married and buy a house someday.

Although the additional coverage will cost more, you won’t need to provide evidence of your insurability. This implies that you won’t need to undergo testing or respond to questions about your health. The insurer cannot deny your application based on a decline in your health when determining your new premium rate.

On permanent insurance plans, the guaranteed insurability rider is typically offered.

Accidental Death and Dismemberment (AD&D)

• Provides an additional payout in the event of death or loss of functions or limbs in an accident

If you pass away in an accident or lose a limb or a function (like hearing), this rider offers an additional payment. In most cases, if you pass away in an accident, your beneficiaries are given an additional payment. On the other hand, if you are hurt, you will get the benefits.

The insurer pays the benefit only if you sustain an injury or die under predefined parameters. For the majority of applicants, this rider might not be worth the cost due to its limited breadth of coverage. But others who lead riskier lives—perhaps because of a hazardous work or hobby—might find it helpful.

The benefit amount you receive often depends on your injury. One policy with an AD&D rider, for instance, may pay 50% of the death benefit amount if you lose one function or limb in an accident and 100% of the death benefit amount if you lose two or more functions or limbs.

Accelerated Death Benefit

• Lets you access a part of your death benefit amount if you are terminally ill

Most life insurance policies often have this rider built in. If you are diagnosed with a terminal illness, you are able to access all or a portion of the death benefit sum (like 50%). Depending on the insurer, the word “terminal disease” may mean different things. It is generally understood to have a life expectancy of 12 months or fewer. Another name for this rider is a living benefit rider. This rider can be especially beneficial for individuals who work in high-risk professions or engage in dangerous activities.

Getting a cash advance on your death benefit will enable you to cover medical costs without having to use up any of your resources. But you can also utilise the cash for other things. You are not required to provide any receipts or explain to the insurance company how you are utilising the reward. Your beneficiaries’ payout will be less as a result of your accelerated death benefit.

The most money you can borrow from an insurer is typically $250,000 or 50% of the death benefit amount, whichever is less.

Consider the case when you have a $2 million life insurance policy. You become ill with a terminal condition and want the expedited death benefit. The most money you might get if your request is granted is $250,000 Your beneficiary will receive $1,750,000 after your passing.

Critical Illness Benefit Riders

Critical Illness

• You receive a lump-sum amount if you are diagnosed with a critical illness covered in your policy

This is a variant of accelerated death benefit rider. If you are critically ill, you are still able to receive all or a portion of your death benefit. Depending on the insurer and policy, there may be differences in the amount of money you can access and the health conditions that qualify as critical illnesses. Common covered conditions include cancer, heart attack, stroke, and organ transplant, among others.

Taking money from your death benefit will lower the amount your family receives after your death.

Child Critical Illness

• You receive a payout if your child develops a covered critical illness

Similar to the regular critical illness rider, this rider applies to your children. If you have this rider, you receive a lump sum if your child is diagnosed with a critical illness covered by your policy. The exact number and list of conditions covered vary across life insurance carriers.

The payout can help parents cover medical expenses, but they are free to use it however they like.

Return of Premiums

• You will receive the premium dollars paid into the policy if you outlive the policy term

A return of premium rider is designed to provide a refund of the premiums paid if you outlive the term of your life insurance policy. Return of premium riders are an add-on option included with some term life insurance plans. It offers the potential to receive a financial return if you outlive the policy term, providing a form of savings or investment. If you live longer than the policy’s term, your premiums are refunded. But bear in mind that this rider could drastically increase the price of life insurance.

For example, at the age of 25, you purchased a 30-year term life insurance policy with a return of premium rider. You are still living today, 30 years later, at the age of 55. Your life insurance premiums will be refunded by the insurer as a result.

Disability Riders

Disability Waiver of Premium

• The insurer will waive your premium payments in the event of a disability

In the event that you suffer a disease or injury that renders you disabled, this rider helps to lessen the potential financial difficulties. This rider pays out a monthly benefit if you are unable to perform the duties of your occupation due to a covered disability. You won’t be required to pay monthly premiums if you have this rider and a disability. The waiver covers both the main life insurance policy and any additional riders you may have added. However, the term “disability” might be interpreted in a limited way, therefore you should carefully review your policy.

Mortgage Disability Insurance

• Covers all or a portion of your mortgage repayments if you sustain a disability

This rider covers all or a portion of your mortgage repayments if you lose the ability to earn a living due to a disability.

Disability Income

• Provides financial protection in the event of a disability. You receive monthly payments if you sustain an injury or illness resulting in disability and cannot work.

The size of the monthly payment and its duration is set at the time of buying this rider. There is typically a waiting period. In other words, you won’t begin getting paid until a specific amount of time has passed after you become disabled – typically 30 or 90 days.

Extreme Disability Benefit

• Lets you access a portion of your death benefit amount if you sustain a permanent disability

With this rider in place, in the case of a permanent disability, you receive 50% of your death benefit amount or $250,000, whichever is less. SSQ offers this rider exclusively with all its term life insurance policies, at no extra cost. The inability to carry out at least four out of the six daily tasks without help is typically what insurers refer to as “permanent disability.” The six daily life activities are mobility, eating, dressing, toileting, continence, and bathing.

Other Coverage Riders

Long Term Care

• Allows you to receive a part of the death benefit to pay for care while you are ill

This feature allows you to receive a part of the death benefit while you are still alive to pay for long-term care. The payout can be used to pay for private caregivers, nursing homes, or other aging-related medical bills. This rider can help protect your retirement savings and assets, ensuring that you have the financial resources to receive the care you need without depleting your savings. A beneficiary will receive less money than you anticipated if you deduct money from your death benefit, so keep that in mind.

If at least two basic daily tasks are too difficult for you to accomplish independently, you can use the long-term care rider (such as walking, eating, or bathing).

Hospitalization Income

• You receive a daily payout in the event of hospitalization

It provides a fixed income for each day the insured is in the hospital. The total amount paid out is fixed, and so is the number of days of hospitalization that will be covered.

Family Income Benefit

• Your family receives a fixed monthly income instead of a lump sum after your death

With this rider in place, the insurer will pay your family a fixed monthly income after your death in place of a one-time payment.

Fracture Rider

• You get a lump sum payment if you sustain a fracture in an accident

With this rider in place, you receive a benefit payment if you suffer a fracture due to an accident. You can buy multiple units of fracture coverage. The size of the payout depends on the placement and nature of the fracture.

Best Life Insurance Riders

The best life insurance riders will depend on your specific circumstances. For example, if you have a history of one of the covered critical illnesses (such as a heart attack or stroke) in your family, getting a critical illness rider for that extra layer of protection is most likely a good idea. Working with a licensed insurance advisor can help you build the perfect package of life insurance and riders for you and your needs.

Should I get a life insurance rider?

While a standard life insurance policy provides a death benefit to your beneficiaries upon your passing, riders offer additional coverage and benefits during your lifetime. These riders can help protect you and your loved ones from unexpected financial burdens that may arise due to critical illnesses, disabilities, or accidents. By adding riders to your policy, you can gain peace of mind knowing that you have comprehensive coverage that goes beyond the traditional death benefit.

You may choose to add life insurance riders because they allow you to tweak the coverage as per your needs. You can get riders to extend coverage and add more flexibility to your policy’s terms and conditions. For example, the renewable term rider gives you the option to renew your term life insurance policy without any underwriting.

You should get life insurance riders if they apply to you and your situation: there is no one-size-fits-all solution or answer for life insurance and riders. They are ideal if they provide an additional benefit that you are looking for, and your base life insurance policy alone doesn’t provide or cover.

Are life insurance riders worth it?

Life insurance riders generally add a small extra cost to your policy, but their benefits outweigh this additional cost. That being said, they are more worth it if they apply to you and you require them. For example, getting a critical illness child rider when you don’t have children or are planning to have children within the policy’s length doesn’t make sense and is not worth it. Or, if you have a perfectly healthy family with no history of critical illnesses, getting a critical illness rider probably isn’t worth it.

When considering the cost of life insurance riders, it’s important to assess the value they provide in relation to your needs and priorities. Evaluate the potential financial impact of not having the riders versus the additional cost of including them in your policy. Remember, the purpose of riders is to enhance your coverage and provide added protection, so weigh the benefits against the cost to make an informed decision.

Adding or removing a life insurance rider

The best time to add a rider to your life insurance policy is at the time of purchase. A life insurance rider can boost your coverage or give you more options. Therefore, it makes sense that the insurer would want to know how much it will cost to provide you with this added benefit. Underwriters are able to account for this expense thanks to the medical examination you undergo as part of the procedure and the health questionnaire.

After the life insurance policy is in force, you must submit an application if you want to add a rider. Although some riders cannot be added later, a majority can. To confirm your health, the insurer will require you to undergo a medical examination. They will use this information to determine if they can grant you the requested benefit and, if so, at what cost.

It’s considerably simpler to remove a rider from an existing life insurance policy than to add one. Simply advise the insurer of your desire, complete the application, and submit it. The insurer will modify your monthly payment once the rider has been dropped.

Frequently Asked Questions (FAQs) about Life Insurance Riders

Finding the protection you need

If you’re not sure which is the best rider for your situation and needs, talking with a licensed life insurance advisor can help you find the perfect riders to build the best policy for you and your family.

At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, Alberta, and British Columbia, including areas such as London, Maple Ridge, and Grande Prairie.