Living and death benefit riders are a descriptive class of contractual add-ons to insurance and annuity products. These riders provide additional benefits for the contract holder and are purchased at an extra cost. Living and death benefit riders can vary from company to company in both pricing, scope, and definition of the rider's benefits and what qualifying event may trigger them.
Understanding Living and Death Benefit Riders
Living and death benefit riders allow for benefits to be paid when applicable during the life of an annuity owner or insurance policyholder. Typically, life insurance policies only pay a death benefit and annuities only pay living benefits; however, riders attached to either can allow for living benefits to be added to life insurance policies and death benefits to annuities. It is useful to look at riders for insurance and annuities separately.
Life insurance contracts have a built-in death benefit, but riders can be added. An accidental death and dismemberment rider pays out an additional death benefit, typically a multiple of the face amount, if the policyholder dies in an accident as opposed to illness or natural causes. This is sometimes referred to as a double indemnity rider.
Life insurance contracts can also have living benefit riders. Guaranteed insurability options may be purchased so that the insured can obtain more coverage in the future, regardless of changes in their health. Waiver of premium riders can be purchased so that if the policyholder becomes disabled, the insurance company will allow them to forgo regular premium payments until they recover.
Accelerated Death Benefit
An accelerated death benefit rider is used when a policyholder is terminally ill. The beneficiary can elect to advance a portion of the death benefit while alive to pay for qualified medical and hospice expenses. Some life insurance contracts will also allow you to accelerate the death benefit to pay for qualified long-term care expenses with a long-term care rider.
Annuity contracts pay a guaranteed living benefit in the form of a regular income stream. Cost-of-living riders can be purchased to ensure that the income stream increases with inflation. Guaranteed minimum withdrawal benefit riders can be added to variable annuities to ensure that some minimum value is paid out even if the investments inside the contract perform poorly.
Some annuities do not pay a death benefit when the contract holder dies. Survivorship riders allow the income stream to pass from the deceased to their spouse. Death benefit riders and enhanced death benefit riders will pay out a lump sum to the annuitant's beneficiaries upon their death.