What Is A Family Term Rider?
A family income rider is an addition to a life insurance policy that provides the beneficiary with an amount of money equal to the policyholder’s monthly income in the event the policyholder dies. The rider is a type of death benefit and specifies the term for the additional coverage, eventually expiring if it’s not activated by the death of the insured.
| Features of a Family Income Rider |
|---|
| Provides a regular stream of income to the policyholder’s family in addition to the lump-sum death benefit. |
| Income is paid out in installments based on the size of the death benefit or the number of months the policyholder would like their beneficiaries to receive payments. |
| The beneficiary may choose to receive a lump sum rather than monthly payments. |
| Designed for individuals who are the sole earning members of their family to ensure financial stability for their beneficiaries. |
| Must be claimed within a certain period of time specified in the policy. |
Family income riders are offered for little or no cost to policyholders because the death benefits are earning interest while held by the insurance company as distributions are made. Adding a rider will often increase your premium, though it will extend the coverage of your standard policy.
Consider a father who decides to purchase a 20-year, $500,000 life insurance policy with a family income rider. After five years, the father passes away. His death triggers the death benefit for the wife, who then receives a regular monthly payment for the next 15 years, as stipulated by the family income rider. The monthly payment is usually a certain percentage of the face value of the policy. In addition, at the end of the 20-year term, the wife would also receive the $500,000 lump-sum payment.
Riders may vary in length, and there is a cost-benefit analysis on whether to sign up for a rider. In some cases, individuals or families may need additional coverage beyond what a standard policy may offer. In these situations, it is suggested these individuals discuss rider options with their financial or investment agent to best understand their options.
In summary, a family income rider is an insurance policy add-on that provides an additional benefit to the policyholder’s beneficiaries in the event of their death. This rider is designed to provide a regular stream of income to the policyholder’s family, typically for a specified period of time.
