Life insurance is like most other products and services that are available. You can get the basic product, but you can also add different options to your policy. In the insurance industry, those options are commonly referred to as riders.

You should be aware that any rider will come with an extra charge in your premiums.  So make sure that the rider does not turn what you thought was an affordable life insurance policy into something you really cannot afford.  There are riders that cover all kinds of contingencies. But here are five of the more common riders that you need to be aware of.insurance policy rider

1. Guaranteed Insurability Rider

This rider is valuable because it can work to your advantage on either a permanent policy, or a term life policy. It’s a provision that guarantees that you will be able to purchase insurance in the future from the same carrier, regardless of the state of your health.

If you take a permanent policy, a guaranteed insurability clause will enable you to buy additional coverage in the future without needing to qualify based on the state of your health. This can help you if you either want to increase the amount of your whole life policy, or if you want to add term riders for additional coverage.

Guaranteed insurability is probably even more valuable if you have a term policy. The major downside risk with any term life policy is that it will eventually come to an end. Once it does, you’ll need to replace it with a new policy, and you will have to qualify for that based on your age and the state of your health at the time of the re-application. A guaranteed insurability clause will ensure that you will be able to get a replacement policy, even if you are in poor health.

2. Accidental Death Rider

This rider doubles the face value death benefit of your policy in the event that your death is the result of an accident. This is why these riders are usually referred to as “double indemnity” provisions.

This can be an especially important rider if you work in occupation were the potential of losing your life in an accident is higher than normal. But it’s always good to have because death caused by accidents often brings a special set of financial considerations, that may not be present when death is caused by a progressive illness. For example, since accidental death is sudden, there’s no time to make any advanced preparations.

Should you decide to add an accidental death rider to your policy, be sure that you carefully review the list of covered accidents that the rider will apply to. It should be the longest list possible. So for example, if you are a truck driver, and the rider specifically excludes death caused by auto accidents, the rider probably will not help you.

3. Premium Waiver Rider

This rider will enable you to waive your premiums in the event that you become disabled and are unable to work. The waiver is generally good for up to six months, which will be a major benefit in most cases involving short-term disability.

Obviously, this will be only a limited benefit if your disability turns out to be permanent. However, the rider will provide you with six months to prepare your financial situation for your permanent disability. And that may be just enough time for you to be able to do what you need to do.

4. Convertibility Rider

This rider is specific to term life policies. It gives you the right to convert the term policy to a whole life insurance (permanent) policy, without having to undergo a medical examination.

The basic advantage here is obvious. All term policies will eventually expire, with 30 years typically being the maximum term. If you have the convertibility rider, you can simply convert the term policy over to a permanent policy near the end of the original term.

The one disadvantage of this rider is that it will increase the cost of your term policy. Since most people take a term policy primarily for the purpose of saving money on their premium costs, the rider can make term somewhat less attractive from that perspective. It might even raise the cost of the term policy to the point where it may be worth considering simply going with a permanent policy from the very start.

5. Return of Premium Rider

This is another rider specifically for term policies. It mostly addresses the issue that term policies do not provide any cash value, as you would get with a whole life policy, or other investment-based insurance products.

A return of premium rider is a provision in which the insurance company will refund the premiums you have paid on your term policy while it was in force. This may not be quite as effective as the cash value accumulation in a whole policy, but you can come close.

The insurance carrier is willing to grant this provision because they will be earning investment income on the premiums that you’re paying for your term policy. At the end of the term, they can refund all of your premiums paid, but retain the investment income in exchange for having provided the term coverage.

Once again, cost is a potential downside with this rider. Adding it to the term policy can increase your annual premiums by as much as 35%. However, if you pay say, $1,000 per year in premiums for your term policy, over a 20 year period you will have $20,000 refunded to you at the end of the term.

That won’t be as good as investing $1,000 in a mutual fund for 20 years, but you’ll have your premiums back, plus the benefit of having had term coverage for the whole time.

These are just some examples of the many riders that are available when you purchase a policy. Be sure to ask your insurance broker about any riders the company offers, and carefully consider if one or more will be a benefit for you.

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Everyone needs to have life insurance. But when you’re a business owner, life insurance needs are much more specific. You may find that you need to have several policies, each designed for a very specific purpose.

Life Insurance For All of the Usual Reasons

This is the basic life insurance coverage that you need to protect and provide for your family in the event of your death. Though you will ultimately have to settle on a certain fixed amount of coverage, it helps to know what your family’s specific needs will be when you are no longer around to provide for them.life insurance for business owners

Here are some of the more basic possibilities:

  • Sufficient funds to pay for final expenses
  • Funds to cover lingering medical expenses (there are always deductibles and co-insurance provisions and sometimes even disallowed medical expenses)
  • Enough money to cover your family’s living expenses for at least the first few years after your death
  • Funds to help provide for college for your children
  • Funds to payoff major debts, like student loans or a mortgage

These are the kinds of expenses that life insurance is designed to help you with, whether you are self-employed or salaried. For most households I recommend just getting a cheap term life insurance policy for at least ten times your annual income and this will provide what most people need.  But when you’re self-employed, there are other types of life insurance coverage that need to be considered.

Covering Business Related Debts and Obligations

If you run your own business, it’s likely that you have certain debts and other obligations related to the business. Even if the business will be end upon your death, there may be obligations that will still need to be paid even though the business no longer exists to pay them.

This can include debts that were incurred to create, grow, or maintain your business. It can include credit lines, car loans, or even a mortgage on business property. Beyond formal loans, there may be other obligations that will need to be covered as well. These can include accounts payable balances, income- and sales-tax obligations, and the remaining term on unexpired leases.

Even though you will be gone, and your business will be closed, these obligations will generally survive the business. If they cannot be paid out of business income or assets, they will need to be paid out of personal assets, which means any assets that your family has.

You should make an approximation as to the total amount of these obligations, and make sure that you have a life insurance policy that is large enough to cover them all, and is designated specifically for that purpose.

A Policy To Enable Your Business Partners to Buy Out Your Share

This kind of life insurance policy is common in partnerships and small corporations. In such business formations, each owners contribution to the business is so significant that the death of that person could cause the collapse of the business.

All the partners or owners in the business should maintain a policy on one another that would pay proceeds to the surviving parties in the event of the death of one. It’s the kind of life insurance policy that will serve three very important purposes:

  1. It will enable the surviving owners to buy out the share of the deceased owner, transferring full control over to the surviving owners.
  2. It can also provide an infusion of capital that will enable the surviving owners to adjust to the loss of the deceased partner.
  3. The proceeds of the policy that will be paid to buy out the deceased owner’s share, will be paid to his or her family, and represent additional funds for the deceased owner’s loved ones.

This type of life insurance will be a business expense, and is absolutely essential for any enterprise that has two or more owners. Not having such a policy could result in the surviving owners losing the business entirely.

“Key Man” Life Insurance

This kind of life insurance is not the type you carry on yourself as a business owner, but rather one you take out on the lives of employees who were key players in your business, as the term “key man” implies. This is the kind of employee who, were he or she to die, their loss would cause a financial hardship for your business. Under extreme circumstances, it could even result in your being forced to go out of business.

A key man policy could be taken on a life of anyone who works for you that your business can’t do without. This can include the general manager, a top salesperson, or a person who has very important industry contacts. It can also be taken on an important production person, a master mechanic, or an IT person who is a major player in your business.

The proceeds of this policy would provide you with the funds necessary not only to replace that person following their death, but also to cover business losses that may happen as a result of their loss.

As you can see, business owners need look a lot deeper at their life insurance needs than salaried people do. There are a whole bunch of obligations in a self-employed persons life that other people don’t have. If you are a business owner, you should meet with an insurance broker to fully review your life insurance needs.

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