What is a Term Rider? - Insurance Rider Series 2
This is week two of our series of posts all about insurance riders. Last week we released a post about insurance riders in general.
This will be focused on term riders. What they are, why you might need one, and what terms are available.
What is a term rider?
A term rider adds extra term life coverage to your base policy.
This add-on is designed to provide additional temporary life insurance cover. A term rider is ultimately a term life insurance policy with a much shorter-term length than the base policy.
These are often added to permanent life insurance policies.
These types of riders are especially useful when someone is starting off their career and their liabilities are high, while their assets are still low.
A policyholder can stack up many term riders to ensure they have more protection when they are younger.
The coverage amount reduces as different term riders slowly start expiring over the years.
As the policyholder becomes more financially independent, their life insurance policy will only provide the coverage they truly require.
Using the term rider in this manner is referred to as “laddering”.
This approach is useful in situations when more protection is needed in the early part of someone’s life insurance policy term.
For instance, they may need a higher death benefit amount when they have a high mortgage balance.
Why use term riders?
Another reason why a person might want to add a term rider to their policy is if they have small children.
A term rider can provide additional coverage until their children reach adulthood.
Which helps ensure that their family is financially protected during the critical years when the children are dependent on them.
A term life insurance rider can also be a cost-effective way to increase coverage.
Permanent life insurance policies can be expensive, and adding a term life insurance rider can provide additional coverage without the high cost.
This can be particularly beneficial for those who have limited budgets or are just starting their careers.
As mentioned previously, term riders last for a shorter period than the base policy. A Term 10 rider or even a Term 20 rider to a 30-year term policy, or a permanent policy.
We do this with our leveraged life insurance, which will usually have a base amount of whole life or universal life and then add a big amount of term rider because that will provide the correct amount of insurance needed, and allows a client to put a lot of cash into it. And grow it.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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