Guaranteed Insurability Rider

Your ability to qualify for life insurance coverage depends on a variety of factors. But with a Guaranteed Insurability Rider, you're guaranteed additional coverage with no underwriting.

© CreditDonkey

A Guaranteed Insurability Rider (GI rider) guarantees you the ability to add more coverage to your death benefit with no additional underwriting.

However, most riders cost extra per month, so you should only add them on if it makes sense.

What Is a Guaranteed Insurability Rider?

What happens if you purchase a life insurance policy and, in the future, you decide that you need more coverage? Purchasing an additional policy can be costly, and approval is not guaranteed due to the change in your age and health status.

So, what are your options?

To help plan for these scenarios, you can add a Guaranteed Insurability (GI) rider to your policy when you purchase. This allows the owner of the policy (you) to increase the policy death benefit in the future without additional medical underwriting or risk assessment.

So what does "guaranteed insurability" mean?

• Guaranteed
  No matter what your circumstances are, you will definitely get the increase in death benefit if you request it. You are literally guaranteed the additional coverage.

• Insurability
  Refers to the absence of a large amount of risk for the insurance company. The lower your risk, the higher your insurability.

  Alternatively, the higher your risk, the lower your insurability.

For example, if you have cancer, your risk is high and insurability low. Alternatively, if you are young and healthy, your risk is low and insurability high.

The GI rider guarantees that you can add additional death benefit coverage at certain points in your life without proof of your insurability.

This adds risk for the life insurance company, so there often is an additional charge for adding this rider to your policy.

However, if you do need additional coverage in the future, the higher premium will pay for itself because it won't cost as much as an additional new policy.

How Does a GI Rider Work?

If at some point you decide you want a larger death benefit, you can enable your GI rider. The increase that can be added to the death benefit is limited to amounts such as the face value of the policy (for a maximum of $100,000 - $150,000, depending on the carrier), or a given amount set by the insurance company (like $10,000).

The times you can add the additional coverage are called "option dates."

These occur either at certain pre-determined ages, during special life events like marriage or birth of a child, or every 3 - 5 years on the anniversary of your original policy purchase.

There is usually also a cap to the amount of coverage that can be added.

For example, say you have a $500,000 life insurance policy with a GI rider. You are able to add $10,000 to your policy when you have specified life events and at ages 30, 35, and 40.

If you get married once, have one child, and take advantage of the age events, you could increase your policy to a total $550,000 without having to provide additional health information or insurability risk. ($10,000 x 5 total increase events [two life events, three age events].)

Also know that once you reach a certain age, usually in your 40s or 50s (depending on the company), you are no longer able to use the GI rider. Some insurance companies also set a limit on how many total times you can use the rider.

While at face value a GI rider seems like a good idea, is it worth paying the extra per month for something you may or may not use?

Why Is a GI Rider Valuable?

When you purchase a life insurance policy, you are making somewhat of a prediction about the future.

First, you'd use a life insurance calculator or other formula to determine how much coverage you think you'll need based on estimated funeral expenses, medical bills, total debts, potential childcare costs, etc.

You don't know exactly what will come your way and how much coverage you could possibly need, but you should be able to estimate an initial coverage amount.

If at some point in your life you determine you need more coverage, it may be more challenging to get approved compared to when you purchased your original policy. This is because you are older, you possibly have different health conditions, and you already have a policy in place.

It's not impossible to be approved, but you will likely have to pay higher premiums on the new policy in addition to paying premiums for both policies each month.

Instead, to prepare for unexpected life changes, you can add a GI rider to your original policy. With the rider, you avoid the underwriting process when you increase coverage and can do so regardless of your age or health.

The GI rider allows you to maximize the death benefit of your policy and give your beneficiaries the highest payout possible.

What Is the Cost of a GI Rider?

The cost to add a rider to your insurance policy varies between companies, so you should check with yours to learn exactly how much you will pay.

That being said, you can typically add a GI rider for only a few additional dollars per month. Remember, you have to purchase this rider at the time you purchase your policy; it cannot be added later.

How Do I Use the GI rider?

If you want to elect an increase to your policy, you must complete a written application. Again, you won't have to prove your insurability, but you do need to officially request the increase.

Once the application is completed and submitted to the administrative office of the insurance company, you will also have to submit the first new premium (increased because of the increase in your policy).

In some cases, if you are submitting a request for increase because you got married or had a child, you may have to provide additional proof or documentation to the insurance company.

Once all of the requirements are met and submitted, the change in benefit and premium will begin the next month.

Bottom Line

Guaranteed Insurability riders are very common and valuable for most people. For only a few additional dollars a month, you could guarantee your ability to add to your policy coverage throughout your life and increase the policy death benefit.

If you think you or your beneficiaries may ever have a need for additional life insurance coverage or death benefit in the future, you should consider a GI rider. You will save money with this option instead of purchasing a new, additional life insurance policy in the future.

Talk to a life insurance agent to understand what your options are. They can help you determine whether or not a GI rider would be beneficial to you, how much it will cost, and how to enact the rider in the future if you choose.