Monday, October 8, 2007

Life Insurance Policy Riders: Worth the Money?

By Mary Pollman – SelectQuote

Life insurance is such a simple concept. I pay X for a policy that will pay Y if I die in the next Z years.

So why do so many life insurance policies seem so complicated?

One reason is riders. Riders are add-ons. They give you an extra benefit for an extra cost. Sometimes that’s good. But sometimes it’s like the upsell at the cash register – Would you like fries with that? – when all you really wanted was the burger.

The add-ons are expensive
At fast food establishments, the add-ons are expensive if you consider the inherent value of the item. Fountain drinks, for example. They may cost the restaurant less than a dime in syrup and soda water. They may cost you a dollar.

That’s the way it is with some life insurance riders too. The base policy may be a great value. But that’s typically not true of riders. So if you load up the policy with riders, you may be adding attractive features, but you should be aware that you’re probably paying top dollar for them.

And sometimes the add-ons sound a lot more useful than they really are.

Case in point: The Accidental Death Benefit rider
A rider that is often sold with term life insurance policies is the Accidental Death Benefit rider. If you buy one of these riders, and if you die in an accident, you’ll typically get the same death benefit as your base term life insurance policy. So, if you buy a $500,000 base term policy and add an Accidental Death Benefit rider, your family will get an extra $500,000 – a total of $1,000,000 – if you die in an accident.

$500,000 Base Policy Death Benefit
$500,000 Accidental Death Benefit (same as base policy amount)

At first blush, it kind of makes sense. But actually it’s rare that a family really needs extra money just because the breadwinner died in an accident. Often, it’s just the opposite – a long illness followed by death can be a much bigger financial drain.

Better solution: Just buy more term life insurance – or buy nothing
So, in this case, either your family really needs $1,000,000 no matter how you die, or they’ll be okay with the $500,000. In the former case, you should just buy more low-cost term. In the latter, you shouldn’t buy anything extra at all. In either of these cases, the Accidental Death Benefit rider is the wrong way to go. The one who really benefits is the life insurance company who got you to pay XX% more in premiums without taking on much risk that they’d actually have to make that big payout.

About the author. Mary Pollman, CLU, has been writing about life insurance, long-term care insurance and annuities for more than 20 years. She has contributed to insurance publications, websites, consumer product literature and agent training. Mary held senior management positions in communications and marketing with two life insurance companies. She is an editorial advisor to SelectQuote.

Get good advice on whether riders will add value to your policy – or just expense.
A SelectQuote Licensed Expert can show you options for term policies from highly rated Term Life Insurance companies, and they can give you candid advice on which riders are worthwhile. Quotes are free. Call toll-free 1-888-739-7965 . Or go to our website, .

No comments: