An essential part of any financial plan is making sure that your loved ones would be fine if you passed away while they were still dependent on you.
For most people, that means buying life insurance. Term life insurance is the most affordable and simpler type, and is sufficient for most families. It covers you for a number of years, unlike permanent life insurance, such as whole life insurance, which covers your entire life.
But even with a simple term life insurance policy, you can trick coverage with additional features called life insurance endorsements. They improve your coverage, but generally increase the cost.
First of all
You want to understand the options, but don’t let the extras distract you from your main goal.
“Take responsibility first for getting the right amount of coverage with the right policy term at the most competitive price,” says Scott W. Johnson, owner of Marindependent Insurance Services in Mill Valley, Calif.
Only then, consider the extras. “In general, I don’t recommend them unless the additional cost is easily affordable and there is a clear need for additional coverage,” says Chris Huntley, president of Huntley Wealth & Insurance Services in San Diego, California.
Here is an overview of the common endorsements you might encounter:
Accelerated death benefit
What he does: Allows you to spend a portion of the policy death benefit during your lifetime if you have a terminal or severe chronic illness.
What to consider: Many policies automatically include this functionality; you can add it on others for a small cost. The goal is to alleviate financial hardship at the end of life, but it’s not a replacement for health insurance or long-term care, according to the American Council of Life Insurers. Anything you spend will be subtracted from the payment to your beneficiary.
What he does: Increase payment if you die of an accident.
What to consider: If your dependents would need a larger payment, purchase additional coverage to cover death from any cause. The cost of life insurance per $ 1,000 of coverage decreases the more you buy. Accidental death coverage is inexpensive because it only covers accidental death and rarely pays.
“The Accidental Death Benefit Rider is more like a two-card game of riding than a useful financial tool,” Johnson said.
Blanket for children
What to consider: This usually increases your monthly price by a few dollars and provides coverage of $ 5,000 to $ 10,000 for a child, says Huntley. “A lot of people like the idea of having something in place to cover funeral expenses and, perhaps more importantly, time off from work while grieving.”
Shop around if this is important to you. Most companies charge for each child, but some have a flat rate for an unlimited number of children, says Huntley.
Possibility of conversion
What he does: Allows you to convert some or all of your term coverage to permanent life insurance.
What to consider: Most term life insurance policies are automatically convertible, but with some you pay extra for this capacity. If you want permanent coverage later, understand the rules. There are usually deadlines for the conversion of the policy, and it can take years before the end of the term.
Waiver of premiums in the event of disability
What he does: Pay the premium for life insurance if you become disabled and cannot work.
What to consider: This jumper may be worth a visit if you have health problems; this usually increases the premium by around 10%, says Huntley.
But the price varies by company, so get a quote with and without the rider to decide if it’s worth it. Johnson says he recently helped a client with a medical condition find an affordable 20-year term insurance policy. Adding a waiver of premium rider would have increased the price by 70%, so the customer decided not to.
Reimbursement of the premium
What he does: Returns the money you paid for coverage if you are alive at the end of the term.
What to consider: You get the money back, but that doesn’t mean the coverage is free. Typically, that jumper doubles or triples the price, says Huntley. You could get away with buying blanket coverage and investing the difference in price.