What’s a Guaranteed Insurability Rider for Life Insurance?

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Life insurance is a key component of just about every financial plan you’ll see put together by a financial advisor. It’s important because it pays out a death benefit when you die, which protects your family from suffering financially and keeps them living the lifestyle they're accustomed to.

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If you’ve bought life insurance before, you know that life insurance companies typically require proof of insurability. There is a surprising number of people who try to purchase life insurance after they’ve been diagnosed with a terminal illness, and accepting these risks can be very expensive for life insurance companies in the long run.

A guaranteed insurability rider, sometimes known as a guaranteed purchase option ride, is an optional benefit you can add when you take out a permanent life insurance policy, like whole or universal life. The rider gives you the chance to buy predefined amounts of additional life insurance without proving that you are still insurable.

Guaranteed insurability riders allow you to buy additional life insurance at specified intervals, like every three or five years, without taking a medical exam and regardless of what your health situation is at the time.

For example, an individual diagnosed with terminal cancer would not, under normal circumstances, be able to increase their life insurance death benefit. However, if that individual had purchased a guaranteed insurability rider, they could increase their life insurance policy’s face amount despite the diagnosis.

Definition of a Guaranteed Insurability Benefit Rider for Life Insurance

A guaranteed insurability benefit rider is an optional feature that you can add to a life insurance policy, which allows an insured to customize their policy. This rider is added for the sole purpose of purchasing additional life insurance in the future, which will be approved by the life insurance company without requiring the insured to have a medical examination.

Who Typically Purchases a Guaranteed Insurability Rider?

Guaranteed insurability death benefit riders are typically purchased by people who are under the age of 40 and have reason to believe they will be facing health challenges in the future. 

For example, if diabetes or another chronic illness runs in your family, buying a permanent life insurance policy with the guaranteed insurability rider ensures you of having the maximum amount of coverage you’ll need while keeping your premiums lower in the earlier years of your policy.

How Does a Guaranteed Insurability Rider Work?

To purchase a guaranteed insurability rider, you must first buy a permanent life insurance policy, such as whole life insurance or universal life insurance. These two types of policies cover you for your entire life, as long as you continue to pay your premiums.

Permanent life insurance premiums are generally higher than they are for term insurance, which will only pay out a death benefit to your beneficiaries if you die during the specified term of the policy (1, 10, 20, 30 years).

With the rider being part of your life insurance policy, you’ll have the ability to increase the face amount of your policy at specified times, which are known as “option periods.” Some of these option periods are related to your age.

For example, your life insurance policy may allow you to increase your face amount at ages 25, 30, and 35. The final option period is usually set around age 40, when you’ll need to have a medical exam any time you want to increase your death benefit.

In addition to age-related intervals, your policy will also provide you with the right to increase your face amount within a specific time period (normally 90 days) of the following life-changing events:

  • Marriage
  • Birth of a child
  • Adoption of a child

These are the only times you can use the guaranteed insurability rider to increase your death benefit. Instead, you’ll need to wait for one of the other option periods outlined in your policy.

It’s important to note that you’re not required to exercise your right to increase your face amount during any of the option periods. If you choose not to increase your face amount during one of those periods, it doesn’t affect your ability to increase it during future option periods.

The life insurance policy is also going to stipulate in your policy the amount of additional death benefit you can add to your policy when each option period comes around, as well as the total maximum benefit you’ll ever be allowed to add. 

For example, let’s say you purchase a $250,000 life insurance policy with a guaranteed insurability rider. Your policy will likely give you the ability to increase the face amount by a maximum of $250,000. If you exercise the guaranteed insurability rider to the maximum allowed by contract, your policy’s death benefit will be $500,000.

Do I Need a Guaranteed Insurability Rider?

If you’re younger and concerned that you or your child who you bought a policy for are likely to suffer health challenges later in life because of your family history, it would be a good idea to add this low-cost rider to your policy.

How Much Does a Guaranteed Insurability Rider Cost?

Guaranteed insurability riders are inexpensive, increasing the life insurance premium by about $3 to $5 per month for a permanent life insurance policy.

Pros and Cons of Guaranteed Death Benefit Riders

There’s one pro for adding the guaranteed death benefit rider: you’ll be able to buy life insurance in the future regardless of your health situation. Someone who buys a life insurance policy at age 25 and keeps it until they turn 65 will quite likely have developed some health conditions over those 40 years. The guaranteed insurability rider allows them to protect their family to a greater extent than when they first took out their policy by buying the coverage they need without having to qualify medically.

There are several downsides to guaranteed insurability riders:

  • You are paying an additional premium on top of the basic life insurance premium for a rider you may not use in the future. Therefore, some people find it to be more efficient purchasing a higher-value life insurance policy from the start.
  • The final option period is usually around age 40, which means you’ll have to purchase a policy with this rider when you’re in your 20s or 30s,
  • The cost of permanent life insurance is not affordable for many people in their 20s and 30s, and it increases as you age. This means that this rider is not going to help you avoid premium increases as you age, which can be substantially higher than term life insurance policies.
  • You generally can’t buy a guaranteed insurability rider with less inexpensive term insurance; you have to opt for the more expensive permanent life insurance policies. Since whole life and universal life insurance premiums are higher, younger people may find the permanent insurance premiums to be more expensive than they can afford.

Because of these downsides, people who aren’t concerned about their health status in the future may not be interested in adding a guaranteed insurability rider to their policy.

Alternatives to a Guaranteed Insurability Rider

If you think you’re going to need more life insurance in the future, there are other riders available that can provide you with similar benefits. They include:

  • Cost-of-living-rider: To offset the impact of inflation, these riders also allow you to purchase additional insurance each year. The amount of insurance you can buy is based on the amount the cost-of-living-index has increased. You generally don’t have to provide evidence of insurability for these riders, either. 
  • Term life rider: This rider allows you to add term life insurance coverage on top of your permanent life insurance policy to cover additional insurance needs for a short duration of time. 

Tips for Purchasing a Guaranteed Insurability Rider for Life Insurance

If you’re going to be buying a life insurance policy in the future, here are several tips to help you purchase a guaranteed insurability rider:

Tip #1: Be upfront with your agent about your concerns. During your conversations with your life insurance agent before you sign an application, they will be asking you about your medical history. These will be factual questions that usually contain the words, “Do you now have, or have you ever had, any of the following medical conditions:”

Of course, you’ll want to truthfully divulge the facts about what conditions you’ve had or haven’t had, but also let the agent know if you are concerned about something cropping up in the future that could cause you to become uninsurable. If the agent knows this, they’ll be quite likely to explain, recommend, and price the guaranteed insurability rider for you.

Tip #2: Ask the life insurance agent to explain every rider available for the type of policy you're interested in. Life insurance agents sometimes forget to provide you with all of your options, which can lead to you lacking important riders that might benefit your family financially someday.

Consider Term Life Insurance as an Option

If you or your child have a medical condition that could worsen as you or they get older, then a guaranteed insurability rider may be a good option for you. However, most relatively healthy adults can save money and get higher coverage amounts by purchasing term life instead of adding the guaranteed insurability rider.

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