Guaranteed insurability riders: buying more coverage later

A guaranteed insurability rider (also called a guaranteed insurability option, or GIO) lets you buy additional life insurance at specific dates or after specific life events, such as marriage or the birth of a child, without proving you are still healthy. It protects against the risk that a health problem will make new coverage costly or impossible. It is most useful for a young, healthy buyer who expects needs to grow, and it is less useful if you can simply buy another policy later.

How the rider works

The rider gives you the right, not the obligation, to increase coverage. You pay a charge for it while it is in force, whether or not you ever use it. When an option date arrives, you can purchase a stated additional amount at the rates for your age at that time, with no medical evidence.

The details are set in the contract, but most riders share these features:

• Option dates. Fixed dates, often tied to specific birthdays, when the option can be used. If you skip a date, the option is often lost, though some riders carry it forward.
• Event options. The right to exercise the option within a window after marriage, the birth or adoption of a child, or a similar event, as the contract lists them. Often these events let you exercise at that time rather than waiting for a birthday.
• Option amount. Typically the lesser of a stated dollar amount or the policy's original face amount. Insurers also cap the total you can add under the rider.
• Premium for new coverage. Based on your attained age at the time, and on the rate class stated in the rider, which is usually the class of your original policy.
• Expiration. The rider ends at a stated age, which is commonly in the thirties or forties but varies, and no options are available after that.
• Conditions. Some riders limit or suspend options in certain situations, such as total disability, or require the base policy to be in force. Check the contract.
• Charge. An added cost to the premium or a monthly deduction from the account value. The amount varies by insurer, age and policy type.

An example (hypothetical)

Say a 28-year-old buys a $500,000, 20-year term policy with a guaranteed insurability rider. The rider lets her add up to $100,000 of additional coverage at stated ages, or after a marriage or birth, up to a total cap. Two years later she has her first child and exercises the event option. She buys $100,000 more on the same policy basis, with no exam. A year after that she is diagnosed with a serious health condition that would make new coverage hard to get on the open market; she still has option dates remaining, and uses another one.

If she had not bought the rider, the added coverage could have been priced at higher rates or declined. The cost of the rider in those years was the price of that possibility.

The numbers are made up to illustrate how the options work.

What to compare before adding it

Alternatives to the rider

1. Buy more now. If you can afford more coverage today, a larger policy locks in your health rating immediately. See How much life insurance do I need?.
2. Ladder your coverage. Buying a second term policy later when needs grow is an option if you stay insurable. See laddering term life policies to match your needs.
3. Use the conversion privilege. Term policies allow converting to permanent coverage without evidence, which preserves insurability in a different way; see converting term life to permanent: how the conversion option works.
4. Employer coverage. Group life often offers increases at open enrollment, sometimes up to a limit without evidence of insurability. See employer group life insurance: what it really covers.
5. Child term rider. For your children's own future insurability, see child term riders: coverage, conversion and alternatives.

Who it suits and who it does not

It tends to suit people who are young, expect big changes (marriage, children, a growing business, rising income), have a family history that makes future health uncertain, or would find new coverage expensive if something went wrong. For a first-time buyer in good health who can afford a larger policy now, simply buying more coverage up front often does more for the money. If you are already older than the rider's final age, or already insured to the level you need, the rider has little to offer.

A few points that matter at the contract level:

• Exercising the option usually creates a new coverage block with its own contestability and suicide clauses. Ask how they apply (the two-year contestability period).
• The option is generally not available if the policy has lapsed.
• The rider may fix your rate class at the original one or change it if your tobacco status differs; the contract says which.

Key takeaways

• A guaranteed insurability rider lets you add coverage at fixed dates or after listed life events without a medical exam, for a charge you pay whether or not you use it.
• The value depends on the option amounts, the number of dates, the rate class on new coverage and the age at which the rider ends.
• It suits young buyers who expect their needs to grow and are worried about future insurability.
• Buying more coverage now, laddering policies or using a conversion option are alternatives.
• Costs and terms vary by insurer, so request the rider's schedule and price in writing.