Waiver, guaranteed-insurability, payor, and accidental-death riders

Waiver, guaranteed-insurability, payor, and accidental-death riders

A rider is an amendment attached to a life insurance policy that adds, removes, or changes a benefit. Riders usually carry an extra premium, and they can generally be added only when the policy is issued (or later with evidence of insurability). Four riders appear constantly on the exam. Each one is easiest to remember by its trigger (what has to happen) and its result (what the insurer then does).

Waiver of premium

The waiver of premium rider protects the policy if the insured becomes totally disabled.

• Trigger: total disability that begins before a stated age (commonly 60 or 65) and lasts through a waiting period, typically six months.
• Result: the insurer waives premiums for as long as the disability continues. Most riders also refund the premiums paid during the waiting period once the claim is approved.
• The policy stays in force exactly as if the premiums had been paid: cash values keep growing and, if the policy is participating, any dividends the insurer declares continue to be paid. Waived premiums are never repaid if the insured recovers; the owner simply resumes paying.
• Total disability is usually defined as inability to work in the insured's own occupation for an initial period (often two years), then inability to work in any occupation for which the insured is reasonably suited by education, training, or experience.

On universal life, the equivalent is a waiver of monthly deductions (or waiver of cost of insurance) rider, which waives the monthly charges rather than a fixed premium. Note the difference from a disability income rider, which pays the insured a monthly income: waiver of premium pays no cash to the insured at all.

Guaranteed insurability

The guaranteed insurability rider (also called the guaranteed purchase option) lets the owner buy additional coverage without proving insurability.

• Trigger: a specified option date, usually tied to the insured's age (for example every three years from age 25 to about 40), or a life event such as marriage or the birth or adoption of a child.
• Result: the insured may buy a stated amount of new coverage with no medical exam and no health questions. The new coverage is priced at the insured's attained age at standard rates.
• Each option must be exercised within a short window (commonly 60 to 90 days); an option not used lapses, but later options remain. The rider generally expires around age 40.

Its value is protecting future insurability: someone who develops a serious illness can still add coverage on each option date.

Payor benefit

The payor rider is used mainly on juvenile policies, where a parent or guardian (the payor) owns the policy and pays the premiums on a child's life.

• Trigger: the death of the payor, and on most versions the payor's total disability as well.
• Result: premiums on the child's policy are waived until the child reaches a stated age, often 21 or 25, when the child can take over the payments.
• Because the risk being covered is the payor's death or disability, the payor, not the child, must qualify medically for the rider.

The New York Department of Financial Services notes that juvenile insurance may be sold with a payor benefit rider that waives future premiums on the child's policy if the person paying the premium dies.

Accidental death benefit

The accidental death benefit (ADB) rider pays an extra amount, on top of the face amount, when the insured dies by accident.

• Trigger: death caused by an accident, occurring within a set period after the injury (commonly 90 days) and usually before an age limit such as 65 or 70.
• Result: an additional benefit, most often equal to the face amount. That is why it is called double indemnity; a triple indemnity version pays three times the face amount.
• Common exclusions: suicide, war or military service, aviation other than as a fare-paying passenger, death while committing a felony, and death from illness or disease.
• Accidental death and dismemberment (AD&D) adds a principal sum for accidental death and a capital sum for the loss of limbs or sight, usually the full principal sum for two members and half for one.

The ADB is relatively inexpensive because accidents cause a small share of deaths. It supplements a needs-based amount of coverage; it should not replace one.

How New York treats these riders

Under New York Insurance Law § 3203, a life policy must become incontestable after two years from issue. However, the insurer may except provisions for total and permanent disability benefits and additional accidental death benefits from that incontestable clause. So a disability-based waiver or an accidental death benefit can still be contested after two years even when the base death benefit cannot. Section 3203 also refers to premiums waived under a waiver of premiums benefit: when the insured dies, the insurer refunds premium paid beyond the policy month of death, but not premium that was waived.

Exam tip: match the rider to whose event triggers it. Waiver of premium: the insured's disability. Payor: the payor's death or disability. Guaranteed insurability: an option date or life event. Accidental death: an accidental death of the insured within the time limit.