Choosing riders for a young family's first policy

A first term policy for a young family arrives with a menu of add-ons, each with a small monthly price. The useful way to read that menu is to ask what bad outcome each add-on covers, how likely and how costly that outcome is for your household, and whether something you already have covers it. The four households below are invented, as are their prices, to show how different families can reach different answers from the same menu.

Each rider is described in general terms. Contracts differ by insurer and state, so read the actual rider language before you buy.

The menu, in plain words

Here is what the five items most often discussed for young families do.

• Waiver of premium. If you become totally disabled, as the rider defines it, and remain so past a waiting period, the insurer stops charging premiums and keeps the policy in force. It protects the policy, not your income. See waiver of premium riders: what they cover and when they pay.
• Child term rider. A small block of term coverage on all your children for one flat charge, with a right to convert it to permanent coverage later without a health exam. See child term riders: coverage, conversion and alternatives.
• Guaranteed insurability option. The right to add coverage at set dates or after events such as a birth, without new health evidence. See guaranteed insurability riders: buying more coverage later.
• Conversion privilege. The right to exchange term coverage for permanent coverage without a health exam before a deadline. It is usually a policy provision, not a priced rider; see converting term life to permanent: how the conversion option works.
• Accelerated death benefit. The right to receive part of the death benefit early if you are terminally ill, as the rider defines it. Many insurers include this with no separate premium and recover the cost by discounting the payout. See accelerated death benefit riders: how they work and how they're taxed.

A larger discussion of the whole menu is in life insurance riders: which are worth paying for. The test used below is simple: what does the rider cost over the years you would pay it, and what does it provide if the bad event happens?

Household 1: a main earner who worries about a lapse

Priya, 32, and Sam, 32, have a two-year-old daughter. Priya earns most of the household income. They buy $500,000 of 20-year term on her. The illustrative base premium is $38 a month, and a waiver of premium rider adds $3 a month.

The rider's cost. $3 times 240 months = $720 over 20 years.

What it could do. Say Priya becomes totally disabled at 40, after eight years, and the rider's waiting period is six months. If she stays disabled for five years, the insurer waives premiums after the waiting period. The total premium with the rider is $41 a month, so 54 months of waived premium is 54 times $41 = $2,214. (If the rider refunds premiums paid during the waiting period, add six more months, or $246, for $2,460.) The dollars are less important than the outcome: the $500,000 policy stays in force through the years when she cannot work, when it would be hardest to pay and, if her health changed, hardest to replace.

What it does not do. It does not replace her paycheck. Her employer's long-term disability plan, if she has one, or a separate disability policy does that. See life insurance vs disability insurance: which to buy first.

Their decision. They add the rider to Priya's policy because her income is the family's main support and $720 over twenty years is small beside the face amount. They skip it on Sam's smaller policy, whose premium is an illustrative $27 a month, reasoning that if Sam were disabled the family could cover that from savings for a while. Another family could reasonably choose the other way. The point is that they priced the rider against the exposure instead of buying it because it was on the form.

Household 2: three children, one flat charge

Kim, 36, and Terrence, 37, have children aged six, four and one. Terrence buys $750,000 of 20-year term. The illustrative child term rider covers each child for $10,000 at a flat $5 a month, no matter how many children there are.

The rider's cost. $5 times 240 months = $1,200 over 20 years. But the rider covers children only up to a stated age, commonly in the late teens or early twenties, so they will likely pay it for fewer than 20 years. Use 18 years for the arithmetic: $5 times 216 months = $1,080.

The alternative. Say a separate $10,000 policy on each child would cost an illustrative $8 a month each, or $24 a month for three. Over 18 years that is $24 times 216 = $5,184. The rider saves about $4,104 over that span in the example, a figure that depends entirely on the invented prices.

What it provides. A child's death is a devastating event. The financial loss is usually final expenses and time away from work, not lost income, and $10,000 per child covers the first. The most durable part is the conversion right. When each child reaches the age the rider names, they can often convert to a permanent policy without a health exam, even if they develop a condition in the meantime. That is a form of insurability that is hard to buy any other way.

The caveat. The rider belongs to the parent's policy. If Terrence's policy ends, the rider usually ends with it unless the contract lets the children convert at that point. They check the conversion age, the conversion amount and what happens if the policy lapses.

Their decision. They keep the child rider because it is cheap for three children and the conversion right matters to them. They also write the conversion deadline on the family calendar.

Household 3: a single parent on a tight budget

Jordan, 29, is a single parent of a four-year-old and has about $30 a month to spend. A 20-year, $400,000 term policy is quoted at an illustrative $24 a month. The riders offered are waiver of premium at $2.50, child term at $3.50 and guaranteed insurability at $5. An accelerated death benefit comes with the policy at no extra premium, according to the quote.

The arithmetic. $24 plus all three optional riders would be $24 + $2.50 + $3.50 + $5 = $35 a month, above the $30 budget. The base plus waiver is $26.50, and the base plus waiver plus child rider is exactly $30.

The reasoning.

1. The most dangerous event for Jordan's child is Jordan's death or disability, since Jordan is the only parent. The base policy covers death. The waiver rider protects it if Jordan cannot work.
2. The guaranteed insurability option adds coverage later, but Jordan has no spare budget to use it, and an option you cannot afford is worth little. Jordan can instead buy a second small term policy later if health and money permit.
3. The child rider's benefit is mostly final-expense money, which Jordan could pay from a small emergency fund. Its conversion right is useful but not urgent.
4. The accelerated benefit is already there. Jordan asks the agent to confirm it and to show the contract language, including how the payout is discounted.

Conversion. Jordan also asks about the conversion privilege, which does not add to the price. The key questions are the last date to convert and the permanent products allowed. A single parent who may need coverage past 20 years should know the answer before signing.

Their decision. Jordan takes the base policy and the waiver, spends $26.50 a month, and keeps $3.50 a month as slack. A separate, small child policy can wait until the budget grows. See which riders on a term policy are worth paying for for a sorting method that applies to a tight budget.

Household 4: planning a second child and a business

Ana, 28, and Mateo, 30, have one child and plan a second. Ana has a family history of serious illness at young ages, and she may start a business in a few years. They buy $350,000 of 20-year term on Ana for an illustrative $29 a month. A guaranteed insurability option adds $6 a month. Under the invented terms, it lets her buy up to $50,000 more at each of several set ages or after a birth or adoption, with no health evidence, up to a $250,000 total, and it expires at 40.

The rider's cost. From 28 to 40 is 12 years, or 144 months: $6 times 144 = $864.

The alternative. Buy $450,000 now instead of $350,000. Say the extra $100,000 costs an illustrative $8 a month for 20 years: $8 times 240 = $1,920. That buys certainty of the full amount on day one, at the current health rating, with no decision needed later. It also costs more in total and pays for coverage Ana may not need yet.

The comparison. If Ana's health is never a problem, the option is pure cost: $864. If it is a problem, the option may be the only way she can add coverage after the second child without a decline or a large rate increase. The value of the option is the value of that insurance against becoming uninsurable.

Another route. She could buy a second small policy later. That depends on staying healthy, which is exactly what she is unsure about. And the new policy would start a new contestability period, as in replacing a policy resets the contestability clock: what to expect.

Their decision. Because of the family history and the planned second child, they add the option. Mateo buys a plain policy with no riders because he has no similar concern. They write down the option dates and the event windows; many options must be exercised within a limited window.

What the four households did differently

Each annual figure is the monthly charge times 12. $3 times 12 = $36; $5 times 12 = $60; $2.50 times 12 = $30; $6 times 12 = $72.

Riders this group often passes on

Young families sometimes see other add-ons on the same menu. Each one has a case for and against, and none is a default.

• Accidental death benefit. It adds to the death benefit only if death is accidental, as the rider defines it. Most deaths that leave young families without a parent are not accidents, so the rider covers a narrow slice of the risk. Some buyers like the extra amount for a modest charge. Others spend the same money on a larger base policy, which pays for every cause. See accidental death benefit riders: what they cover and exclude.
• Return of premium. It refunds the premiums if you outlive the term. It raises the premium a great deal, and the refund comes without interest. A family on a budget can usually buy more coverage with the same money, while a family that wants a guaranteed return of what it paid may weigh it differently. See return of premium term life insurance: is it worth it.
• Critical illness. It pays a lump sum on diagnosis of a listed illness. It overlaps with health insurance and disability coverage, so look at what you already have first. See critical illness riders on life insurance: how they work.

The same test applies to each: the bad event, the dollar exposure, what already covers it, and the cost over the years you would pay.

If the budget will not stretch

When money is limited, a sensible order of spending is usually the base policy at the right size first, then protection of that policy through waiver of premium if one income carries the family, then anything that depends on children or on future insurability. A bigger base policy with no riders often leaves a family better protected than a smaller policy with several riders. Riders can be dropped later if money gets tight; the base policy is the thing to keep.

A way to test any rider

1. Name the bad event. Disability, a child's death, a health change, a terminal diagnosis.
2. Price the exposure. What would that event cost in dollars if nothing covered it?
3. Check what you already have. Employer disability, group life, savings, a spouse's income.
4. Compare cost over the period you would pay it with the cost of the next-best alternative.
5. Read the definition. The trigger words in the rider decide whether it pays.
6. Check the end date. A rider that expires before the risk does gives less than it seems.
7. Ask whether you can drop it later. Dropping a rider is usually easy; adding one later usually is not, as rider myths: what must be chosen at purchase and what can wait explains.

Also use the How much life insurance do I need? to confirm that the base policy is large enough before spending on add-ons. A bigger face amount often does more for a family than three small riders.

Questions to ask the agent

• Which riders are included at no charge, and which add a premium?
• Is each rider charge guaranteed for the life of the policy?
• What are the exact definitions of the trigger (disabled, terminally ill)?
• When does each rider expire, and can I drop it without affecting the base policy?
• What does the conversion privilege allow, and by what date?
• For the child rider, what are the covered ages and conversion terms?

If you do not understand an answer, ask for the contract language. If you feel pressed, your state insurance department can answer general questions about riders and the rules that apply to them.

Key takeaways

• Price each rider against the specific bad event it covers and what you already have, not against the total on the quote.
• Waiver of premium protects the policy during disability and does not replace income; it fits households where one income carries the family.
• A child term rider is cheap per child and its conversion right is the longest-lasting benefit; check the ages and the deadline.
• A guaranteed insurability option is worth the most to a young buyer who expects needs to grow and worries about future health; buying more coverage now is the alternative.
• Check what is included free, such as accelerated benefits and the conversion privilege, before paying for extras, and keep the base policy large enough first.