Glossary
Guaranteed insurability rider, defined
An add-on to a permanent or term policy that lets the insured buy additional coverage at set future dates or life events without new medical underwriting. The price of the added coverage reflects the insured's age at the time, not their health.
In practice
It is bought young, usually on a child's or young adult's policy, because the value lies in locking in insurability before a diagnosis. Option dates are typically fixed ages, with alternate triggers such as marriage or the birth of a child, and each option that goes unused expires. The amount that can be added at each date is capped, and so is the total across all dates. The cost is modest at issue, and the option is worth nothing to someone who stays healthy and never exercises it, which is the nature of any option. Ask whether exercising it requires the base policy to still be in force and whether the added coverage carries the same riders.
A worked example
Suppose a parent buys a $100,000 whole life policy on a ten-year-old with options to add $50,000 at ages 25, 28, 31 and 34. Suppose the child develops a chronic illness at 22. At 25 he exercises the first option and adds $50,000 at standard rates for a healthy 25-year-old, with no medical questions asked. Hypothetical figures.
Applies to: Life Insurance