You have decided you need life insurance. You have decided whether you want term or permanent. You have decided how much life insurance you need. Now for the rest of the choices.
3) Riders and options
Insurance riders are optional additions to the insurance contract. They generally, but not always, enhance the contract with additional costs. Many of them have confusing names and sound alike. Some of the more common ones include:
Accelerated death benefit is automatically included in many policies. It allows you to receive an amount of the policy if you are diagnosed with a terminal condition. It functions similarly to the waiver of premium rider. The exact terms depend on your policy.
Accidental death benefit, sometimes referred to as double indemnity, pays out a larger amount if the cause of death is accidental. While this makes for lots of nice plot twists in movies, it is pretty worthless as far as life insurance goes. Generally, the way you die does not affect your family significantly differently than the fact you are dead.
Child insurance rider is one of the best scams available in the insurance business. The people who need to buy insurance most are new parents. Asking them, "Do you want to protect your baby?" is a great way of piling on options to a policy. The child insurance rider has no benefit for your baby. It is for you, in case you will need a sum of money to help you cope with the costs involved in the loss of your child. Is that protection you need more than contributing to your child's college fund?
Guaranteed issue or convertibility refers to the option to buy insurance in the future based on your health today. Many insurance policies have various provisions for converting term insurance to permanent insurance or allowing you to buy more insurance in the future without new medical underwriting. Your need for life insurance varies greatly at different stages in your life. This type of flexibility is definitely a plus.
Return of premium is a hedge against outliving your term life insurance. Depending on the tax advantages and your ability to adversely select your coverage, this may make sense for you. That is a numbers game for your financial planner. Some people just hate the idea of paying for life insurance for twenty years and not getting anything back. These people tend to not understand the idea of insurance, which is to cover you in case of something unexpected.
Waiver of premium is the only rider that I recommend consistently to my clients. If you are disabled, you will not be required to pay your premium. Paying for your life insurance while you are spending every dollar trying to survive literally adds insult to injury. This is no replacement for adequate disability coverage, but it is a good start.
4) Who is the beneficiary?
This question often comes as a surprise to people, even though they are buying life insurance to protect specific individuals. Do you leave the policy to your children directly? What if that person dies with you? What percentage of the policy are you going to leave for each?
These are questions of estate planning that go beyond an insurance adviser's expertise.
All competent insurance professionals will tell you to make sure your beneficiary claims the insurance in case of your death. If your insurance policy is paid to your estate, you will lose much of the inherent tax and asset protection advantages. Insurance companies make a habit of not paying out life insurance until someone comes asking. Your beneficiary doesn't necessarily need to know how much life insurance you bought, but should know that you have purchased it and where.
The American Council of Life Insurers provides a very useful site to help you.
As always, it is best to discuss your individual situation with a qualified insurance broker.
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