Life insurance is an important resource to the well-being of your family in the event of an untimely passing. The way most people think about life insurance is by seeing a windfall of cash in the event of death. But, there are many ways a life insurance policy can provide protection while you are living and even ways it can be leveraged to increase your quality of life.
What is a Rider?
In a life insurance policy, a rider is an additional term added to the original agreement. Throughout the world of life insurance there are many riders. Different companies and contracts will have different riders available to go along with them. Riders are generally optional – although, some circumstances in your living status or health could either restrict you from adding certain riders to you policy or require they be added – and they often increase your monthly premium.
Riders can be used to your advantage but you certainly shouldn’t go adding every available rider to your policy. The added expense needs to be taken into account with the benefits that you are acquiring. For the purpose of this article, we are talking about the one rider that should always be included on your policy if it is available.
Waiver of Premium
This rider activates when you are unable to work. There are many added specifications to what entails the ability to work and this often includes whether you are able to perform work in your field of training or whether you can perform any kind of work at all. The language attached to this rider is essential to review so you can understand what situations trigger it. The wording may be different between companies.
The language of each waiver of premium rider might be different, but the purpose of it is to give you relief from paying premiums in the event that you find yourself unable to earn income. This is important because you don’t want to lose the protection for your family because of an unforeseen circumstance that keeps you from working.
A rider like this can also be especially powerful in the event of permanent disability. In that case, the premiums would be waived for the rest of your life. This gives you the certainty that the policy will still be in place when you need it. On top of that, the cash value of the policy will continue to grow without your making contributions to the policy.
This means that the advantages you gain of a tax-free bucket of money through your life insurance policy will still be in place for you and your family. Although you do not need to make contributions, you can if you want to. While you are disabled, any money that you receive from disability insurance is considered unearned income. A retirement account can only have additions made to the account through earned income so, payments from disability could not be included. Life insurance has no such restrictions. Any money can be contributed to a life insurance account.
In this situation, even though your premiums are being taken care of by the company, you can still contribute additional money towards the policy. This would give you additional growth in your tax-free bucket of money. It will not have the potential upside of being in the stock market, but it is extremely powerful safe money since the contract is now guaranteed for the remainder of your life.
Including this rider on an insurance policy should not be considered a sufficient replacement for disability insurance. While it creates an effective financial opportunity, it will not provide you a dependable source of recurring payments while you are unable to work. You should consult a licensed agent and ensure you understand you’re the language of your contract completely before agreeing to a life insurance policy.