Fidelity Life: Are Riders Truly Beneficial When Buying Term Life Insurance

The core component of a term life insurance policy is the death benefit. The policyholder's beneficiaries receive this money, which can help replace the policyholder's income and pay off debts if the policyholder passes away during the policy term.

Prospective policyholders often encounter life insurance riders, or optional add-on coverage, while searching for a policy. However, some riders may cost extra, so policyholders may wonder if they're helpful. This article will explain a few benefits of adding riders to a term life insurance policy, then explore a few popular riders.

Benefits of life insurance riders

Life insurance riders can offer term life insurance policyholders numerous benefits. Here are a few advantages:

1. They let policyholders customize coverage.

The main benefit of life insurance riders is that they allow the policyholder to customize their coverage to their needs. For instance, a policyholder might have their policy for many years and want to protect their death benefit from inflation. So, they might invest in an inflation rider that grows their death benefit each year to keep up with inflation.

2. They can be free or typically lower-cost.

Some life insurance riders are free — either included in the policy automatically or upon request. Those that aren't free are often affordable, making altering coverage fairly inexpensive.

3. There are many types.

Life insurers may offer different life insurance riders to fit multiple needs. Prospective policyholders can shop around to find insurers offering the riders they need most and compare costs, saving money while getting the coverage they need.

Types of life insurance riders to consider

As mentioned, many life insurers offer numerous riders. Exact terms and costs may vary, but here are a few common riders policyholders can choose from:

1. Inflation rider

Inflation riders increase the death benefit by a fixed percentage, usually 3% to 5%, every year to keep up with inflation. This protects the death benefit against inflation and offers beneficiaries a higher death benefit. These riders cost money, but the price can be well worth it. For example, a 5% inflation rider on a $500,000 death benefit will increase the death benefit to $502,500 after one year — a $2,500 increase.

2. Return of premium rider

Return of premium riders may be added to term life policies and will refund all paid premiums to a policyholder if they outlive the policy term. Getting this rider can make a term life policy more expensive. However, policyholders can benefit from these if they're confident they'll outlive their policy term.

3. Child life insurance policy rider

A child life insurance policy rider pays the policyholder a small death benefit if their child passes away while the policy is in force. This helps policyholders pay for funeral costs and similar expenses and provides financial peace of mind while the parents grieve.   

Customize life insurance coverage with riders

Life insurance riders can benefit policyholders by allowing them to customize coverage at a low cost. For example, policyholders who want to outpace inflation can consider an inflation rider. The return of premium rider can work well for term life insurance policyholders confident they'll outlive their policy. Finally, a child insurance rider can be a good idea for policyholders who want to prepare for the worst.

Regardless, policyholders should shop around to see what kind of coverage and riders each insurer offers while comparing quotes. This will help them tailor coverage to their needs while staying within budget.

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