Life insurance extras: Which coverage riders are worth the price?

Source: USA Today

A vital part of any financial plan is making sure loved ones would be OK if you died while they still depended on you.

For most people that means buying life insurance. Term life insurance is the most affordable and simplest kind, and it’s sufficient for most families. It covers you for a certain number of years — in contrast to permanent life insurance, such as whole life, which covers your entire life.

But even with a simple term life policy, you can trick out the coverage with extra features, called life insurance riders. They enhance your coverage but usually add to the cost.

First things first

You want to understand the options, but don’t let the extras distract you from your main goal.

“Lead first with getting the proper amount of coverage with the correct length of policy at the most competitive price,” says Scott W. Johnson, owner of Marindependent Insurance Services in Mill Valley, Calif.

Only then consider the extras. “I don’t typically recommend them unless the additional cost is easily affordable and there is a clear need for the additional coverage,” says Chris Huntley, president of Huntley Wealth & Insurance Services in San Diego.

Here’s a look at common term life riders you may run into:

Accelerated death benefit

What it does: Lets you spend some of the policy’s death benefit while you’re alive if you have a terminal or serious chronic illness.

What to consider: Many policies automatically include this feature; you can add it onto others for a small cost. The purpose is to ease financial hardship at the end of life, but it’s not a replacement for health or long-term care insurance, according to the American Council of Life Insurers. Anything you spend will be subtracted from the payout to your beneficiary.

Accidental death

What it does: Increases the payout if you die from an accident.

What to consider: If your dependents would need a bigger payout, buy more coverage to cover death from any cause. The cost of life insurance per $1,000 of coverage gets cheaper the more you buy. Accidental death coverage is cheap because it covers only death by accident and rarely pays out.

“The accidental death benefit rider seems more like a game of two-card monte than a useful financial tool,” Johnson says.

Coverage for children

What it does: Adds life insurance for children.

What to consider: This commonly increases your monthly price by a few dollars and provides $5,000 to $10,000 of coverage for a child, Huntley says. “A lot of people like the idea of having something in place to cover funeral expenses and, perhaps more importantly, time off work while grieving.”

Shop around if this is important to you. Most companies charge for each child, but some have a single charge for unlimited children, Huntley says.

Conversion option

What it does: Lets you convert some or all of your term coverage to permanent life insurance.

What to consider: Most term life policies are automatically convertible, but with some you pay extra for that ability. If you might want permanent coverage later, understand the rules. There usually are deadlines for converting the policy, and they may be years before the term ends.

Disability waiver of premium

What it does: Pays the life insurance premium if you become disabled and can’t work.

What to consider: This rider might be worth a look if you have health issues; it typically increases the premium by about 10%, Huntley says.

But the price varies by company, so get a quote with and without the rider to decide if it’s worth the cost. Johnson tells of recently helping a client with a medical condition find an affordable 20-year term policy. Adding a waiver-of-premium rider would have boosted the price by 70%, so the client decided against it.

Return of premium

What it does: Returns the money you paid for the coverage if you’re alive at the end of the term.

What to consider: You get the money back, but that doesn’t mean the coverage is free. As a general rule, this rider doubles or triples the price, Huntley says. You could come out ahead by buying coverage without the rider and investing the price difference.

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