2010 Il Life & Health Insurance Exam Unit 10

Front 1

Riders

Back 1

• Special policy provisions that provide benefits
not found in the original contract or that make
adjustments to it
– Can be used to enhance or add benefits to the policy
• Additional premium charged for additional benefits
– Can be used to take benefits away from the policy
• Are attached to the policy, thus become part of
the contract
• Can also refer to term insurance that is attached
to a whole life policy

Front 2

Waiver

Back 2

• A type of rider typically used to exclude benefits
• No premium is charged

Front 3

Waiver of Premium Rider pt. 1

Back 3

• One of most common riders for life insurance
policies
• Additional premium charged
• Applies when policyowner and insured are same
person

Front 4

Waiver of Premium Rider pt. 2

Back 4

• If insured becomes disabled, premiums are paid
for the duration of the disability
– There is a waiting period (typically three to six
months) during which insured pays premiums
– If disability continues beyond waiting period
• Insurance company pays premiums for the
duration of the disability
• Insurance company also would then reimburse
insured for first months of already paid premiums
as well (retroactive)
– If insured recovers from disability, insured would
again resume premium payments

Front 5

Waiver of Premium Rider pt. 3

Back 5

• Rider typically ends at age 60 or 65
• If a traditional whole life policy, policy cash value
continues to grow just as if insured was paying
the premiums

Front 6

Waiver of Premium Rider:
For Universal Life Polices

Back 6

• Sometimes referred to as waiver of cost of
insurance
• Typically waives the cost of insurance, but does
not pay the total premium the insured was
paying
– Result is that no excess premium goes into the cash
value, but no expense costs are taken out of cash
value either because cost of insurance being waived
– Cash value remains intact and continues to earn
interest
– Rider typically ends at specified age (i.e. age 60 or
65)

Front 7

Disability Income Rider

Back 7

• Provides the insured policyowner a regular
monthly income if he becomes totally and
permanently disabled
• Income usually based on face amount of the
policy
• Most, but not all, disability income riders include
waiver of premium
• Income continues for the length of the disability
• Waiting period of three to six months typically
applies

Front 8

Payor Rider

Back 8

• Used with juvenile insurance policies
• States that if the payor (person paying the
premiums) of the policy dies or becomes
disabled before the child has reached a
specified age (i.e. age 21 or 25) the insurer will
waive all further premiums until child reaches
that age
• Makes it possible to guarantee that a juvenile
policy will accomplish what its owner wants it to

Front 9

Guaranteed Insurability Rider

Back 9

• Allows the policyowner to purchase additional
permanent insurance at specified times without
having to prove insurability
• Specified times could include
– Specified ages
• Three year intervals common, starting at age 25
and ending at age 40
– Specified occurrences
• Marriage or birth of a child

Front 10

Guaranteed Insurability Rider

Back 10

• Amount of insurance that can be purchased on
option dates usually limited, based upon the
amount and type of the base policy
• Premiums for additional coverage based on
insured’s attained age at the time additional
coverage is added
• Rider generally expires when insured attains
age 40, at which time additional premium for this
rider ceases being charged

Front 11

Accidental Death Benefit Rider pt. 1

Back 11

• Pays the beneficiary an increased death benefit
if insured dies because of an accident
– Increases the indemnity paid (i.e. double or triple)
• For beneficiary to receive this additional benefit,
insured must die of accidental causes within a
specified period of time, usually 90 days
• Accident must occur before a specified age,
usually 60, 65, or 70

Front 12

Accidental Death Benefit Rider pt. 2

Back 12

• Rider’s rate less expensive than regular
mortality rate due to insured’s likelihood of dying
of an accident being less likely than dying of
other causes
• Some exclusions do apply to this rider, and
include
– Death as a result of self-inflicted injury (i.e. suicide)
– Death while committing a crime
– Death as a result of war

Front 13

Accidental Death and
Dismemberment Rider pt 1

Back 13

• Pays a benefit if insured dies or loses a
qualifying body part due to an accident
• Principal sum
– Amount paid if insured dies due to an accident; also
maximum that will be paid for all losses
– If death occurs within 90 days of the accident, insurer
pays 100% of principal sum

Front 14

Accidental Death and
Dismemberment Rider pt. 2

Back 14

• Capital sum
– Amount paid when insured suffers a qualifying
dismemberment due to an accident
– Qualifying dismemberments include
• Loss of limb (severance) at or above wrist or ankle
• Loss of sight in one or both eyes
– Can vary by policy, but capital sum amount often one
half of principal sum amount

Front 15

Return of Premium Rider

Back 15

• Consists of an increasing amount of term
insurance that always equals the total of
premiums paid at any point during the effective
years
– In reality does not return premium but pays an
additional amount at death that equals the premiums
paid up to that time as long as death falls within the
time specified in the rider
– Policyowner is buying term insurance and charged for
it accordingly

Front 16

Additional Insureds Rider pt. 1

Back 16

• Attached to provide coverage for other people in
whom the insured has an insurable interest
• Usually involves a term insurance rider on the
other person(s)
• Common examples include
– Spouse or other insured term rider
• Term insurance rider that covers the spouse
• Term insurance rider that covers a business
partner (i.e. for funding of a buy-sell agreement)

Front 17

Additional Insureds Rider pt. 2

Back 17

• Common examples include (continued)
– Children’s term rider
• Term insurance rider that covers the child or
children
– Family term rider
• Term insurance rider that covers both spouse and
children

Front 18

Accelerated Death Benefits/
Living Benefits Rider pt. 1

Back 18

• If insured is diagnosed with a terminal illness
(i.e. death expected to occur within 24 months),
the insurer will pay a percentage (as designated
in the rider) of the death benefit while the
insured is still alive
• Designed to help relieve some of the financial
duress insured may be experiencing
• Funds can be used in any manner insured
deems necessary

Front 19

Accelerated Death Benefits/
Living Benefits Rider pt. 2

Back 19

• Interest may be charged on the amount paid in
advance
• Death benefits payable under the policy are
reduced by any amounts paid as accelerated
benefits
• Some newer policies automatically include this
provision; older policies may add as a rider
• Provision given without an increase in premium

Front 20

Long-Term Care (LTC) Insurance/
Living Benefits Provision pt. 1

Back 20

• Used to cover health and social service
expenses incurred in a convalescent or nursing
home facility
• Benefits similar to those found in a LTC policy

Front 21

Long-Term Care (LTC) Insurance/
Living Benefits Provision pt. 2

Back 21

• Benefit structure includes the following
– Elimination period of 10–100 days
– Benefit periods are three to five years or longer
– Prior hospitalization for at least three days may be
required
– Benefits may be triggered by impaired activities of
daily living
– Levels of care include skilled, intermediate, custodial,
and home health care
– Certain other optional benefits may also be provided

Front 22

Long-Term Care (LTC) Insurance/
Living Benefits Provision pt. 3

Back 22

• Two approaches to the LTC rider concept
– The generalized or independent approach recognizes
the LTC rider as independent from the life policy
because the benefits paid to the insured will not affect
the life policy’s face amount or cash value

Front 23

Long-Term Care (LTC) Insurance/
Living Benefits Provision pt. 4

Back 23

• Two approaches to the LTC rider concept
(continued)
– The integrated approach links the LTC benefits paid
to the life policy’s face amount and/or cash value
• Combines life insurance and LTC benefits, drawing
on the life insurance benefits to generate LTC
benefits (in a sense like borrowing from the life
insurance to pay the LTC benefits)
– Up to 70–80% of the policy’s death benefit may be used
to offset nursing home expenses
– Under the terminal illness option, 90–95% of the death
benefit may be used to offset medical expenses
– Face amount of the life policy is reduced by the amount
of LTC benefits paid