A Guaranteed Insurability Rider - What Is It And Should I Get One?
Learn about what a guaranteed insurability rider is and how you can use it to get additional coverage later in life.
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Life cover is meant to give you an added sense of security about your family’s well-being, but sometimes policy benefits don’t give you the coverage you might need in every given circumstance.
That’s where riders come in. These are a great way of getting customized benefits added to your term and permanent life insurance coverage.
This article will take a look at guaranteed insurability riders and tell you everything you need to know about them before you add them to your policy.
What Is a Rider?
An insurance rider is a customized addition or term of coverage that can be included in an insurance contract. There are multiple types of riders that can be added to both term and permanent life cover.
Term Life Insurance vs. Permanent Life Insurance Policies
Term life cover is life insurance coverage that lasts for a specific period of time, usually between 5 to 25 years. Once the term of coverage ends, the policy will end too.
Permanent life cover is life insurance that will remain in force as long as you are alive and continue to pay your monthly premiums.
For example, if you have a term or permanent life insurance plan, you can add a disability rider to your policy.
A disability rider will pay out a lump sum of money which you can use to pay for your life coverage if you ever become disabled and can’t afford your monthly premiums.
Or, you can get an accelerated death benefit rider which will allow you to withdraw a portion of your death benefit under specific circumstances before you die.
What Is a Death Benefit?
A death benefit or face value of a life insurance contract is the amount of money that will be paid out to beneficiaries once a policyholder dies.
One option which can help you while you’re alive is a guaranteed insurability rider. This type of rider is great for someone who is interested in increasing their death benefit throughout their lifetime.
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What Is a Guaranteed Insurability Rider?
A guaranteed insurability rider, also known as a guaranteed purchase option rider, gives a policyholder the right to increase their death benefit at a later date without having to go through medical underwriting or a medical exam.
What Is Medical Underwriting?
Medical underwriting is a process that insurance companies perform on prospective policyholders to determine their overall risk profile based on their:
Health.
Medical history.
Family medical history.
Use of tobacco products.
This can be beneficial if a person feels that they might need to increase their life insurance to cover increasing financial responsibilities.
It can also be helpful to people who develop terminal illnesses and want to increase the amount of money their beneficiaries will receive when they die.
Let’s take a look at how a guaranteed insurability rider might be beneficial to someone who is interested in getting permanent life insurance.
Meet Richard, a 27-year-old accountant from Fresno. He is engaged to his long-term girlfriend and is considering getting a whole life insurance plan.
His life insurance agent offers to add a guaranteed insurability clause to his contract.
Scenario 1
Richard decides that he’d rather not pay more each month for the added clause in his contract. He signs the contract and continues with his life.
Ten years later, he and his now-wife have just had their second child and he realizes that he needs to get more life insurance to cover his house, his children, and his wife financially in the event of his death.
Unfortunately, he now has to purchase additional life insurance to add to his coverage.
He has to go through medical underwriting once again and is given a monthly premium that is higher than his existing plan because of his age.
He also now has to pay the monthly premiums of the two life policies for the rest of his life.
Scenario 2
Richard gets the guaranteed insurability rider and pays the additional money each month for this benefit.
Ten years later, his wife gives birth to their second child and Richard decides to increase his death benefit. He calls his life insurance company up and tells them he’d like to use his guaranteed insurability rider.
He doesn’t need to go through a medical exam or the underwriting process, and his life insurance company then sends him his increased life insurance contract to sign.
As you can see, having a guaranteed insurability rider can be beneficial for certain individuals.
Guaranteed Insurability vs. Guaranteed Issue
While guaranteed insurability and guaranteed issue sound similar, these two concepts aren't the same thing.
A guaranteed insurability rider is an addition to a life insurance contract that allows you to increase your death benefit at a later date.
A guaranteed issue policy is a type of life insurance plan that doesn’t require a medical exam, but has a waiting period.
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How Do I Get a Guaranteed Insurability Rider?
Getting a guaranteed insurability rider is straightforward with both term and permanent life policies.
However, term life insurance policies are typically around 5-30 years in length which may limit the benefits this type of clause might provide you as a policyholder.
All you have to do is call your insurance company and ask them if they offer a guaranteed insurability rider. If they do, then ask them about the price and other details you might need to know.
Keep in mind that if you already have a life policy in place, your insurer may not allow you to add a guaranteed insurability clause to it.
In this case, it might be a good idea to look at buying a new policy that has this benefit. If you’d like to find out which companies can help you with this, reach out to one of our experienced agents to get started.
Source: Pexels
How Does a Guaranteed Insurability Rider Work?
A guaranteed insurability rider can be attached to either a term or permanent life insurance plan.
Life insurance companies typically have their own specific conditions and processes attached to when a person can exercise their guaranteed insurability rider.
One thing to note is that you won’t be able to change your coverage amount whenever you like. Your guaranteed insurability rider will give you an option date of when you can use it.
What Is an Option Date?
An option date is the specified date or terms under which you can use your guaranteed insurability rider to increase your life insurance coverage.
Your life insurance company will typically give you specific calendar dates when you can increase your contract’s face value.
For example, your insurance provider might allow you to raise your coverage amount after twenty years from the date that your coverage started.
In some cases, your insurance company may allow you to increase your coverage with certain life events, such as:
Getting married.
Having a child.
You’ll be given a period before and after your option date to use your guaranteed insurability rider. This window will depend on your insurance company’s rules, so be sure to check your contract to understand how much time you have to potentially use your guaranteed insurability rider.
However, if you miss a window to use your guaranteed insurability rider, there will be more opportunities in the future.
Guaranteed insurability riders can typically be used every three to five years, which means you have multiple opportunities to increase your death benefit.
Are There Limits to How Much I Can Increase My Death Benefit By?
Yes, you won’t be able to increase your policy’s value indefinitely since most life cover plans have an upper limit on how much you can increase it by.
Your policy will state the amount that you can increase your life coverage by and you won't be able to go above this number.
For example, let’s say you get a permanent life insurance contract with a death benefit of $150,000 and a guaranteed insurability rider that allows you to increase your contract’s face value by $75,000 over your lifetime.
The maximum increase that is allowed is $225,000. If you want more coverage than this, you’ll need to get an additional life insurance policy.
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What are the Benefits and Drawbacks of a Guaranteed Insurability Rider?
While a guaranteed insurability rider sounds like a great addition to any life insurance contract, it isn’t right for everyone.
Let’s take a look at some of the benefits and drawbacks of adding a guaranteed insurability rider to your life insurance contract.
| Pros | Cons |
|---|---|
| You won’t have to go through a medical exam again if you decide to increase your coverage. | Adding a rider can cost you more each month. |
| You have the option to increase your death benefit at a later point in your life. | You are only allowed to increase your death benefit at specific times throughout your life. |
| Your premiums aren’t affected by your age and health status when you decide to increase your contract’s face value. | Once you’ve increased your death benefit, your monthly premiums will increase. |
| You can increase your death benefit at key moments in your life, like when you marry or have a child. | You cannot lower your death benefit at a later date once you have exercised your guaranteed insurability rider. |
| You can increase your death benefit multiple times throughout your lifetime. | A guaranteed insurability rider might not be beneficial to someone with a term life insurance plan. |
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Who Should Get a Guaranteed Insurability Rider?
These types of riders are perfect for people in specific circumstances. Here are some examples of when it’s a good idea to add one to your life insurance contract:
You want to get permanent life insurance, such as whole life insurance coverage, that will cover you for the rest of your life.
You have a medical condition that may get worse as you age.
You are responsible for a family and want to ensure they are financially protected when you die.
You have a family medical history that makes you predisposed to developing chronic conditions and serious illnesses later in life.
You have a family member with a chronic condition whom you’d like to purchase life cover for.
If you are in any of the above situations, then a guaranteed insurability rider might be a good option.
Our advice is to speak to an expert such as a life insurance agent or financial advisor to find out whether you should get a permanent life insurance policy with a guaranteed insurability rider.
They will be able to tell you what kind of policy will best suit your needs based on your:
Situation.
Finances.
Goals.
Concerns.
Reach out to one of our expert advisors today by sending an email to help@policyscout.com.
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Tips for Finding a Great Life Insurance Policy
If you’re in the market for life insurance, here are some tips you should keep in mind if you want the process to go smoothly:
1) Shop around: Look at various insurance companies in your area before deciding on a contract to sign.
2) Get advice and assistance: Using a financial advisor or life insurance agent can make the process of finding a great life insurance policy simple and easy to do.
3) Have your documentation in order: Make sure that you have all the necessary identity documents, bank statements, and property papers on hand so that you can fill them out.
4) Be prepared for medical underwriting: If you haven’t applied for life insurance before, you’ll likely have to go through a medical exam before you can be covered. Keep this in mind when you start looking for a plan as the results of this test may affect the rates you pay.
5) Speak to your friends and family: Ask trusted people about their life insurance providers and find out what they think about specific companies before you sign a life coverage contract.
6) Research the company before you sign: Look at the financial history of the business and read online reviews to decide whether you’d like to use their services.
If you have any questions or would like to speak to an expert life insurance agent, send an email to help@policyscout.com today.
Source: Pexels
Guaranteed Insurability Rider FAQs
What does the guaranteed insurability option allow an insurer to do?
A guaranteed insurability option allows an insurer to increase the death benefit of a policy multiple times throughout a policyholder's lifetime.
How often can you use a guaranteed insurability rider?
A policyholder can typically raise their death benefit every three to five years. However, you may also be allowed to exercise your guaranteed insurability rider when specific life events happen, like when you get married or have a child.
Where Can I Learn More about Life Insurance?
A guaranteed insurability rider is an excellent way of making sure that you can increase your coverage without having to go through a medical exam again. However, along with this benefit, there are extra costs that you’ll have to cover and there are limits to the amount you can increase your policy by.
If you’re interested in finding out more about guaranteed insurability riders and other life insurance terms, be sure to check out our life insurance hub to find our latest articles and guides.
You can also reach out to our team of expert advisors if you’re looking for help with finding life insurance companies in your area or struggling to understand your options. Send an email to help@policyscout.com or call 1-888-912-2132.