Life insurance companies allow each person to customize their policies with various add-ons. Those add-ons are called Riders.
They allow you to improve a wide variety of coverage options. One of the more popular riders is the Guaranteed Renewability Rider.
What is the Guaranteed Renewability Rider?
This is a common rider for most permanent life policies, such as whole life and universal life. Permanent policies, unlike term, will cover you for your entire life without an expiration date.
Term policies do have a similar feature but it is generally referred to as a policy purchase rider.
The Guaranteed Renewability Rider allows you to purchase additional insurance without the need for a medical exam or underwriting.
You were already deemed acceptable for coverage by the insurance company, so they will not run your profile through underwriting again for the increase in coverage.
How Does the Guaranteed Renewability Rider Work?
The Guaranteed Renewability Rider will allow you to purchase more coverage at intervals.
For example, the insurance company may have certain age markers where you can increase coverage. Or they may use time markers such as every 3-5 years.
Some carriers will use significant life events to allow an increase in coverage. Marriage or the birth of a child are common life events that will trigger the ability to increase coverage.
Again, your health will not be considered for underwriting. The only consideration in pricing will be your age.
There will be limits on how much coverage you can add at each increment. Coverage increases are usually capped based on the health rating you received when you initially placed coverage. The maximum amount is usually capped at double your initial coverage.
For example, a 25 year old male purchased a policy for $250,000. He is now married and beginning a family. The birth of his child triggers a life event on his policy. Because he has the Guaranteed Renewability Rider, he can increase coverage.
Most companies would only allow him to increase coverage up to $500,000, and he may have to do it incrementally over several years. There are some companies that will cap the increase at $125,000.
Make sure you discuss this rider with our agents. They can give you the specifics for each company that offers this rider. Regardless of the rules on the incremental increase, the policyholder still benefits because they are able to increase coverage significantly without being subjected to underwriting.
Who Is It Best For?
This rider is perfect for those who expect significant life changes over time. Perhaps you purchase the policy when you are in your 20’s. You are single with no children. Eventually, you marry and begin having children.
Your life insurance coverage needs have increased due to the growth of your family. Your financial dependents have more at stake if you were to die.
By having this rider, you can contact the insurance company and increase coverage on your policy without going through the underwriting process you experienced when you first took out the policy.
The other big benefit is that none of us know how our health may change. We have seen people with this rider be diagnosed with cancer or heart disease but were still able to increase coverage. If they had been a new applicant, they would have been denied.
How Much Does It Cost?
Term Policies will often include this at no cost as part of the policy, but there may be an increase in premium if the original policy has expired.
For permanent policies, such as universal or whole life, the cost of coverage will be based on your original health ratings. Most of us don’t maintain the same health rating throughout our life. As we age health naturally declines.
We will often gain weight and will not be in the same physical condition that we were in our 20’s. Being able to increase coverage in your 40’s at the health rating your received when you were in your 20’s is a significant benefit.
The Guaranteed Renewability Rider is incredibly inexpensive to add to your policy. For most people, it will only increase their premiums a few dollars per month.
There is a catch.
You can not add this rider to your policy after the policy is issued. This is something you need to consider on the front end of your life application. Make sure you discuss with your agent. If you are a young or in great health at the outset of your policy, you should seriously contemplate adding this to your policy.