What is a term rider in life insurance?

A term rider in life insurance is a temporary addition that provides additional death benefit coverage, which enhances the base policy for a specified period. The key aspect of a term rider is that it allows policyholders to increase their death benefit temporarily, often at a relatively low cost compared to purchasing a separate term policy. This can be particularly beneficial for individuals who are experiencing a life event that increases their coverage needs, such as starting a family or purchasing a new home.

While the core insurance policy provides a certain amount of coverage, the rider supplements this by adding a specified amount of temporary term insurance that expires after a certain duration. This arrangement can help policyholders achieve greater financial protection for dependents or beneficiaries without needing to commit to higher permanent premiums for an extended term.

In contrast, the other options do not accurately define a term rider. An additional coverage option for an existing policy generally refers to enhanced benefits rather than a specific term. Discounts on premium rates for term policies can vary depending on the insurer but do not relate to the nature of a term rider. Lastly, a penalty fee for reducing death benefit coverage does not align with the purpose or function of a term rider, which is to provide additional coverage rather than impose penalties.