What is 'Family Income 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 if the policyholder dies. A family income rider is a type of death benefit, and it specifies the term for the additional coverage. It eventually expires if not activated.

BREAKING DOWN 'Family Income Rider'

In some cases, the beneficiary of a family income rider may choose a lump sum rather than receiving monthly payments. Younger wage-earners will typically choose a longer length of time for coverage because they have more working years left before retirement, and would therefore cause a larger financial hardship to their families if they died.

Life insurance benefits are usually paid out to beneficiaries in a one-time lump sum. However, some life insurance policyholders may have concerns about their beneficiaries' ability to properly manage such a lump sum payment. In such cases, they may elect to add the family income rider to provide additional monies through installments. Based on the size of the death benefit or the number of months a policyholder would like their beneficiaries to receive payments, a policyholder can determine the distribution plan that works best for their family.

Family income rider income is paid out in addition to the death benefit, which beneficiaries receive at the time of the insured’s death. With a family income benefit rider you can specify the amount of time that you would like your family to receive this monthly income. As you age, the number of years for which your family will be eligible to receive compensation decreases and eventually diminishes all together.

family income riders are designed with a growing family in mind. If a policyholder is currently raising a family, or face the financial responsibility associated with the care of others, a family income rider may be a great choice. 

How a Family Income Rider Works

Consider a father that decides to purchase a 20 year, $500,000 life insurance policy with family income rider. After five years, the father passes away. His death triggers the death benefit for the wife, who would receive 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. For example, they might pay 1 percent of the face value every month, or $5000 in this case. In addition, at the end of the 20-year term, the wife would also receive the $500,000 lump sum payment. 

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