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What is a guaranteed insurability rider and how does it work?
As we go through life our needs change. A guaranteed insurability rider can be added to a life insurance policy that gives you the option to increase the policy’s death benefit to cover your changing needs. These can be applied at a specific time (3 or 5 years) or upon a specific life event (marriage, children, new mortgage).
We don’t know where life will take us. We may suddenly need more life insurance coverage due to events such as marriage or having another child. In a few years, we might face new health conditions or lifestyle changes that work adversely against our insurability.
To partially solve this issue, a guaranteed insurability rider (GI rider) allows individuals to expand their prior life insurance coverage without worrying about their future health or lifestyle conditions.
In this article, we explain GI riders and insurance riders more generally. This post also describes how GI riders work, how much they cost, and who should consider them.
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What are insurance policy riders?
Life insurance riders are an optional add-on to enhance your policy’s coverage. If your life insurance policy were a burrito, a rider would be the option to add guacamole! The variety of riders available allow you to customize your policy to further fit your bespoke needs.
The rider availability and costs depend on your insurer, the rider details, your health, and more. Some riders include:
- Hospitalization income: regular payouts in case you’re hospitalized
- Extreme disability benefit: early access to your death benefit if you face a severe disability
- Return of premiums: returns some of the premiums you’ve paid over the policy’s lifetime if you’ve never made a claim
- Critical illness: A critical illness insurance rider pays a lump sum should you be diagnosed with a covered illness
What is a guaranteed insurability option rider?
A guaranteed insurability rider allows you to increase your policy’s death benefit up to a pre-determined amount, without another medical examination. At set times throughout your policy’s life, you have the option to add this additional coverage up to the pre-determined amount. This rider is excellent for those that need a policy that can accommodate future changes that they may not be able to predict.
Although providing a medical examination to an underwriter might not be a lot of work, your premiums could skyrocket if the test discovers new health issues. If you suspect you may face future health problems through means like genetic testing or due to a history of family health issues or lifestyle choices, a GI rider might be useful to add to your life insurance policy. It’s also beneficial if you currently have a limited budget, but want to ensure that you’ll have the option for purchasing additional coverage later on, as your budgeting flexibility improves over time.
Some insurers may offer this rider on term and permanent life insurance, but it’s most common for permanent life policies.
How does a guaranteed insurability rider work?
The typical GI rider works by allowing the insured individual the option to purchase additional coverage periodically in the future, without providing new evidence of insurability (i.e. a new application or exam). The standard timeline to exercise the rider would be 5 years from the effective date of the original policy. Many policies will also allow exercising the option to purchase additional coverage upon certain life events such as the purchase of a new house, or marriage or birth/adoption of a child. Generally, you must exercise the option within a pre-defined period upon any of these life events.
When can you buy a guaranteed insurability (GI) rider?
The availability of a guaranteed insurability rider depends on your insurer. But, the decision of whether to add it is generally decided upon when you apply for your life insurance policy. The addition of the GI rider is approved at the stage of the underwriting process. At this stage, the insurer can view the additional financial risks of providing you with a GI rider and approve the proposed costs.
The guaranteed insurability rider cannot be added after the initial policy contract is issued, so it’s important to review its need at the time of the policy application.
For example, if during the medical exam, the underwriter discovers that you have had cancer or other condition that commonly resurfaces after years of remission, increasing your death benefit may be financially risky to the insurance company, as the likelihood that they would have to pay out the larger death benefit would be high. (Read more about how cancer affects life insurance.)
Your insurer may let you add a GI rider after this point, but it depends on their procedures.
How often can you use a guaranteed insurability rider?
There are usually two ways to apply the guaranteed insurability option — at a set number of years or upon predetermined life milestones. These are also referred to as option dates.
Your option dates may arrive every three to five years. Or, your policy may allow you to have your option dates coincide with events such as marriage, having a child, or other significant life events. Increasing your death benefit at life milestones may be beneficial to accommodate such significant changes as your needs may change during these times. Perhaps before one of these events, such as buying a house, you had fewer liabilities, but after you want to make sure they are covered upon your death. GI riders can help cover your increasing life insurance needs.
To calculate your insurance needs right now, try out our life insurance calculator. This calculator takes factors such as your current liabilities (debts, mortgages, credits) and determines the amount of death benefit coverage you need for full protection.
How much does a guaranteed insurability rider cost?
The guaranteed insurability rider is a relatively inexpensive rider to add to your policy. But some insurers may add a guaranteed insurability rider option for free. Even when there’s a charge, it’s usually inexpensive — a few extra dollars a month depending on your insurer.
Guaranteed Insurability Rider Options
If you are looking to have $100,000 coverage added to your death benefit in the future, the guaranteed insurability rider cost varies depending on age and gender. Keep in mind that your premiums may also increase at the time you actually exercise this rider—the following prices are for the rider only, not the increase in coverage.
| Age | Male | Female |
|---|---|---|
| 25 | $3.06 | $2.55 |
| 30 | $3.06 | $2.55 |
| 35 | $3.26 | $3.06 |
| 40 | $10.71 | $8.36 |
| 45 | $21.02 | $14.99 |
After the initial cost of adding the option of a GI, there is another cost associated with the actual exercising of the GI option when it’s available (such as the pre-determined 3 or 5 years or upon a significant life event). Your insurer ultimately increases your annual premium to accommodate the extra death benefit they will be providing. The overall monthly premium will increase to reflect the higher death benefit being made available for you. The calculation of the increase is based on the age at which you have exercised the GI option. The later you exercise the option, the higher the price of the exercise.
Who needs a guaranteed insurability rider?
A GI rider benefits you if you have prior medical conditions or family health histories that may worsen your circumstances later. If you are concerned about health issues or lifestyle choices in the future but need additional coverage, the rider lets you obtain the additional coverage without another medical examination. So, you can protect your loved ones with adequate life insurance but without a significantly higher premium, that may be associated with adverse health or lifestyle circumstances.
A GI rider is also beneficial where you want
- Your term or permanent life insurance to accommodate changes throughout your life
- Coverage for the future when you anticipate having additional budgeting flexibility to pay for premiums
- To purchase a permanent life insurance policy for your child, whose needs will grow with time
- To adjust business life insurance plans and affiliated buy-sell agreements
Riders provide numerous ways to customize your life insurance policies. A GI rider, specifically, can help you expand your coverage in the future without an additional medical examination.
PolicyAdvisor’s licensed insurance experts can help you learn more about the life insurance and rider options available to you. Book some time with us and see how you can customize a life insurance plan for you and your family’s needs.
- Guaranteed Insurability (GI) riders are added to life insurance policies to allow you to increase the death benefit as additional insurance needs arise
- The increase in coverage under this rider is permitted without a medical exam
- GI riders can be added to term or permanent life policies
