Is a life insurance rider really worth the cost?

Guaranteed Insurability Rider for Life Insurance

When purchasing life insurance, you may have the option of adding endorsements to the policy to extend your coverage. The guaranteed insurability rider allows you to increase the death benefit of your policy without having to undergo a second medical examination. This may increase the cost of your premium, but it may be worth it if you want to provide a larger death benefit for your loved ones. Use the free SmartAssets matching tool to find a financial advisor who can help you make insurance decisions.

What is a Guaranteed Insurability Rider?

A rider is an addition to a life insurance policy that is commonly used to improve or increase your coverage. The Guaranteed Insurability Rider, also known as the Guaranteed Purchase Option Rider, allows you to increase the death benefit of your life insurance without having to requalify. This includes not having to undergo a second medical examination if you have already had one when you first took out the policy.

This type of endorsement is usually added to permanent policies, such as whole life insurance or universal life insurance. These types of policies cover you for life as long as the premiums are paid. Some types of permanent life insurance can also accumulate cash value, which you could draw down over your lifetime.

There is an additional cost to add a guaranteed insurability rider or any other type of rider. But since you don’t have to requalify based on your age or medical condition, it’s usually less expensive to opt for an endorsement than to purchase a second life insurance policy.

How does a guaranteed insurability rider work?

When you purchase a life insurance policy, you may be asked if you would like to purchase additional riders, including a guaranteed insurability rider. If you have a guaranteed insurability rider, you will have several “option dates” to increase your policy coverage. These dates can be predefined or linked to certain life events.

For example, if you follow the predefined path, you may be able to increase your policy’s death benefit every five years. So if you buy coverage in 2022, your first option date would come in 2027. Or your policy could be structured to allow you to increase your coverage when certain life events occur. So, if you get married or have a child, then you can opt for a higher death benefit.

Your policy should have minimum and maximum limits for changing the death benefit. For example, you might be able to increase the benefit by $25,000 at the low end or $100,000 at the high end. The upper limit may even be twice the current death benefit of your policy.

Remember that you do not have to increase the death benefit on each option date. Instead, you can choose when it makes sense for you to do so. At some point, however, you may run out of option dates. For example, your policy may state that once you reach age 50, you cannot increase your death benefit without undergoing a medical examination. This is a risk management move on the part of the insurance company.

The amount you will pay for a guaranteed insurability rider depends on the insurer and the terms of the policy. Generally, you can expect to pay at least a few extra dollars per month in premiums. But when compared to what you might pay in premiums to buy a second life insurance policy later, the extra cost may seem insignificant.

Who needs a guaranteed insurability rider?

Guaranteed Insurability Rider for Life Insurance

Guaranteed Insurability Rider for Life Insurance

Someone who expects to need more life insurance as they age may be a good candidate for a guaranteed insurability rider. Unless you use it as a wealth-building tool to diversify your portfolio, you may not need as much life insurance as you get older. Your accumulated savings and investments could be enough to support your loved ones if something were to happen to you.

On the other hand, you may want to get a guaranteed insurability rider if you anticipate more serious health issues as you get older. For example, this type of jumper may be better suited to people who:

Of course, you can choose a guaranteed insurability rider if you simply want more protection for your peace of mind. This type of endorsement can actually save you money if your health deteriorates, because buying additional life insurance later could cost more.

The main rule of thumb to keep in mind when it comes to life insurance is that the younger and healthier you are, the cheaper it is likely to be. So if you’ve weighed the benefits of term life versus permanent life and decided you want a permanent policy, it might cost you a lot less to add guaranteed insurability or other riders when you are in your 20s or 30s compared to your 40s or 50s.

Benefits of a Guaranteed Insurability Rider

The main advantage associated with this type of endorsement is the possibility of obtaining a larger death benefit without paying much more life insurance. The death benefit of a life insurance policy is designed to provide financially to your beneficiaries. For example, they can use the money to pay off your house mortgage, cover other debts, pay for children’s education costs, or just manage day-to-day expenses.

Adding this type of endorsement to your policy can help ensure that your beneficiaries have enough money to cover these and other costs. If you have a larger mortgage or business debt, for example, a higher death benefit could allow them to meet those obligations while leaving money for other things. And because you can get this coverage for far less than you could pay for a new policy, it’s a cost-effective way to manage your financial plan.

The essential

Guaranteed Insurability Rider for Life Insurance

Guaranteed Insurability Rider for Life Insurance

Riders can make your life insurance policy more comprehensive, but it’s important to understand how they work and what they might cost. If your insurance agent offers you a guaranteed insurability endorsement or something else, take the time to ask questions to understand what value the endorsement could bring you. This can ensure that you get the right type of life insurance coverage for your needs.

Insurance Planning Tips

  • Consider talking to a financial advisor about the pros and cons of guaranteed insurability endorsements and if it’s something you might need. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • When buying life insurance, there are important questions to ask, starting with how much life insurance do I need? Using a life insurance calculator can help you determine the right amount of coverage.

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Earnest L. Veasey