When buying life insurance, you may be offered the opportunity to add riders to the policy in order to expand your coverage. A guaranteed insurability rider allows you to increase your policy’s death benefit without having to complete a second medical exam. Doing so can raise 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 SmartAssets free matching tool to find a financial advisor who can help you with decisions about insurance.
What Is a Guaranteed Insurability Rider?
A rider is an addition to a life insurance policy that’s commonly used to enhance or increase your coverage. A guaranteed insurability rider, which can also be referred to as a guaranteed purchase option rider, makes it possible to increase your life insurance death benefit without having to get requalified. That includes not having to through a second medical exam if you already completed one when you initially purchased the policy.
This type of rider is typically added on to permanent policies, such as whole life insurance or universal life insurance. These kinds of policies cover you for life as long as the premiums are paid. Certain types of permanent life insurance can also accumulate cash value, which you could tap into during your lifetime.
There is an additional cost to add a guaranteed insurability rider or any other type of rider. But because you don’t have to requalify based on your age or health, it’s typically cheaper to opt for a rider than it would be to purchase a second life insurance policy.
How Does a Guaranteed Insurability Rider Work?
When you buy a life insurance policy you may be asked if you want to purchase additional riders, including a guaranteed insurability rider. If you have a guaranteed insurability rider, you’ll have several “option dates” for when you can increase your policy’s coverage. These dates might be preset or tied to certain life events.
For example, if you go the preset route 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 might be structured to allow you to increase your coverage when certain life events happen. So if you get married or have a child, you could opt for a higher death benefit then.
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. It’s even possible that the upper limit may be a doubling of your policy’s current death benefit.
Keep in mind that you don’t have to raise the death benefit on each option date. Instead, you can choose when it makes sense for you to do so. At a certain point, however, you may run out of option dates. For example, your policy may state that once you reach age 50, you can’t raise your death benefit again without undergoing a medical exam. This is a risk management move on the part of the insurance company.
The amount that you’ll pay for a guaranteed insurability rider depends on the insurer and the policy terms. Generally, you can expect to pay at least a few extra dollars a month in premiums. But when weighed against what you might pay in premiums to purchase a second life insurance policy later, the added cost may seem insignificant.
Who Needs a Guaranteed Insurability Rider?
Someone who expects to need more life insurance as they get older may be a good candidate for a guaranteed insurability rider. Unless you’re using 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 may be enough to sustain your loved ones financially if something were to happen to you.
On the other hand, you may want to get a guaranteed insurability rider if you anticipate more significant health issues as you age. For example, this type of rider may be best suited for people who:
- Suffer from a chronic illness or condition that’s likely to get worse over time
- Have a family history of serious illness or disease with a typical early onset before age 45 or 50
Of course, you may choose a guaranteed insurability rider if you simply want to have more coverage for your peace of mind. This type of rider can actually save you money if your health declines, since buying additional life insurance later could be more expensive.
The main rule of thumb to keep in mind with life insurance is that the younger you are and the healthier you are, the cheaper it’s likely to be. So if you’ve weighed the benefits of term life vs. permanent life and decided you want a permanent policy, it could cost you significantly less to add guaranteed insurability or other riders when you’re in your 20s or 30s vs. your 40s or 50s.
Benefits of a Guaranteed Insurability Rider
The main benefit associated with this type of rider is the ability to get a larger death benefit without paying substantially more from life insurance. The death benefit of a life insurance policy is designed to provide financially for your beneficiaries. For example, they may use the money to pay off the mortgage on your home, cover other debts, pay for education expenses for children or simply manage day-to-day living expenses.
Adding this type of rider to your policy can help ensure that your beneficiaries have enough money to cover these or other costs. If you have a larger mortgage or business debt, for example, a higher death benefit could allow them to clear those obligations while still leaving them with money for other things. And because you can get this coverage for much less than what you might pay for a new policy, it’s a cost-effective way to manage your financial plan.
The Bottom Line
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 is offering you a guaranteed insurability rider or something else, take time to ask questions in order to understand how much value the rider might provide to you. This can ensure that you’re getting 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 riders and whether this is something you might need. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When purchasing life insurance there are some important questions to ask, starting with how much life insurance do I need? Using a life insurance calculator can help you pinpoint the right coverage amount.
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