Friday, 28 July 2017

Investopedia: "Family Income Rider'

Family Income Rider
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DEFINITION of 'Family Income Rider'

An addition to a life insurance policy that provides the beneficiary with an amount of money equal to the policyholder's monthly income if the policyholder dies. A family income rider is a type of death benefit, and specifies the term for the additional coverage. It eventually expires if it is not enacted.
BREAKING DOWN 'Family Income Rider'

In some cases, the beneficiary may choose a lump sum rather than receiving monthly payments. Younger wage-earners will typically choose a longer length of time for coverage because they have more working years left before retirement, and would therefore cause a larger financial hardship to their families if they died.

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    Living and Death Benefit Riders
    Future Purchase Option
    Additional Expense Coverage
    Unbundled Life Insurance Policy
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Living and Death Benefit Riders
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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. These 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.

Living benefit riders allow for benefits to 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 in life insurance policies and can add death benefits to annuities.
BREAKING DOWN 'Living and Death Benefit Riders'

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 & 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. An accelerated death benefit rider is used when a policyholder is terminally ill. The beneficiary can elect 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.

Future Purchase Option
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A feature of long-term disability insurance that allows policyholders to increase their insurance coverage annually as their income increases, without medical underwriting, in exchange for paying a higher premium. The future purchase option is typically valid until the policyholder reaches a specified age. The future purchase option means that even if a policyholder develops a health condition that would make it expensive or impossible to qualify for a new policy, they can purchase additional coverage under their existing policy because the future purchase option does not require the policyholder to pass a medical exam.

Also called a “future increase option” or  “guaranteed insurability.”
BREAKING DOWN 'Future Purchase Option'

The future purchase option is also available with long-term care insurance, which is designed to cover extended nursing care costs, such as a long stay in a nursing home. The cost to purchase extra insurance through the future purchase option depends on the policyholder’s age. Also, the insurance company decides how much extra coverage to issue based on the policy’s original coverage amount and the economy’s inflation rate.
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Additional Expense Coverage
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Insurance coverage that provides funds for expenses above what the policyholder was paying before a claim was made. Additional expense coverage is provided to a policyholder if certain criteria are met, and may have a maximum time period over which benefits can be received and a policy limit of the amount of coverage that will be provided.
BREAKING DOWN 'Additional Expense Coverage'

In order for an expense to be considered for repayment by an insurer it must meet a certain number of qualifications. The expense must be considered necessary, must be incurred by the policyholder, must be for the purpose of continuing a normal standard of living, and must be caused by the insurable event occurring. For example, in the case of a homeowner who has his property damaged in a fire, additional expense coverage may cover expenses related to extra costs for food, laundry, and transportation.
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