Riders ****
Very important. Riders are add-ons. Generally there is an extra premium added for these.
Guaranteed Insurability ****
MR. WATSON: Now we can add a rider onto our insurance policy, this will cost an additional premium. It's called a guaranteed insurability rider. What do you think a guaranteed insurability rider will allow us to do?
WOMAN: To buy more insurance without having to take another physical exam?
MR. WATSON: Yes. You are buying an option. And if you exercise that option, you are buying a new policy, regardless of your health. Y'all agree?
ALL: Yes.
MR. WATSON: It allows an insured to buy:
- specified amounts
- at specified times
- at standard rates, regardless of health
Each one will be a new policy. It's saving the insured from proving insurability.
MR. WATSON: You can choose to exercise these options every three years between the ages of 25 and 40. So you can exercise it at 25, 28, 31, 34, 37, and 40. You have 90 days to exercise the option. Failure to exercise one option does not forfeit any future options. Does that make sense?
ALL: Yes.
MR. WATSON: These option dates are stated in the policy. Ex. I bought a life insurance policy when I was 36. How many options do I have left?
MR. WATSON: Two, at ages 37 and 40. The options are at ages: 25, 28, 31, 34, 37, and 40. So if I buy it when I'm 36, how many options do I have left?
ALL: Two.
MR. WATSON: 37 and 40. Does that make sense?
ALL: Yes.
Waiver of Premium ****
- pays the premium should the policy-owner become disabled
- has an elimination (waiting period), usually 90 days or six (6) months
- premiums paid during elimination period are refunded
- Drops off at age 60 or 65
MR. WATSON: So a waiver of premium is what? Waving bye-bye to what?
ALL: Premiums.
MR. WATSON: You are waving bye-bye to a premium. If you become disabled and you can't work, we will pay the premiums for you for as long as you remain disabled. The company is paying the premiums for you so the cash value, if it is a whole life policy, continues to grow. But, this can be added to term as well. That's pretty cool, isn't it?
ALL: Yes.
MR. WATSON: Here you go, going through life. Then you become disabled. If you are disabled, you have to go through an elimination period, a waiting period, during which you are still required to pay the premiums. It may be 90 days, but most often it's six months. If you are still disabled at the end of six months, they will return those premiums back to you. Then they will pay the premiums for as long as you remain disabled. If you ever go back to work, just pick up paying the premiums at that point in time. You don't have to pay them back. Does that make sense?
ALL: Yes.
MR. WATSON: The cost of this rider can be controlled by the length of the elimination period. The longer the period, the lower the cost for this rider. This rider will usually drop off from the policy when you are 60 or 65 and the premium will be adjusted accordingly. But, as long as you became disabled while the rider was in force, the company will pay the premiums for as long as you are disabled, even to age 100 if it was a straight whole life policy. You can't add the rider after age 55 or 60, depending on the company.
MR. WATSON: But, what constitutes disability? What constitutes being disabled? There are two definitions, any occupation and own occupation and each policy you buy will have one or the other. You choose at beginning, when you are buying the policy.
- Any occupation , basically, for our purposes, it's the inability to do any occupation that you are reasonably trained. Can you do anything to generate an income? Say you are a field-goal kicker and you lose your leg. Can you do anything?
WOMAN: Yeah. Hop on the other leg.
MR. WATSON: Can you hold the ball? Work at a call center? Flip burgers? If so, for our purposes you are not disabled.
- Own occupation - the inability to do your own occupation. If you are a surgeon and you lose your hand, you can't operate. You can't do your own thing. Even if you can write, lecture, teach, etc., you will still be considered disabled by the policy's definition. This is the best definition to have. Sometimes, the definition will change from "own occupation" to "any occupation" after two years of being disabled. This allows the guy to be retrained. Usually doesn't happen though.
MR. WATSON: So you are going to buy a policy and add a rider- waiver of premium, added for an extra charge - and the definition of "own occupation" is the one you want.
MR. WATSON: Here is something cool. You can add multiple riders at the same time. For instance, let's say you added the waiver of premium and the guaranteed insurability rider. You were 20 years old when you first bought this policy. $100,000 face amount. At age 23, you became disabled. The waiver of premium kicked in and paid the premium for you. Now, at age 25, you're still disabled, you exercise the guaranteed insurability rider for another $100,000. You're still disabled so the waiver of premium kicks in for this new policy as well. Same thing at age 28, 31, 34, 37 & 40. If you're still disabled, you are not paying a thing. Good move.
Waiver of Monthly Deduction****
Be careful. This is similar to above but found only on Universal life policies.
MR. WATSON: Similar to the Waiver of Premium, the Waiver for Monthly Deduction is for any Universal product. It only pays to keep the policy in force by paying only for the cost of the insurance and administrative costs. It does NOT pay the entire premium the insured has been paying. If you remember, universal life allows flexible premiums whereby the policy owner may pay only the cost of insurance. Any excess amount paid would go towards the cash values. This only pays for the cost of insurance, nothing going towards the cash value. If the insured does not become disabled, the benefit would drop off at age 60 or 65. The only way the cash value increases would be through any interest it is earning.