What Is a Rider?

What Is a Rider?

Let me tell you directly: a rider amends a basic insurance policy by adding benefits or altering its terms, offering more flexible coverage. If you need extra protection for your home, life, or personal belongings, insurance riders can meet those unique needs. They do come at an additional cost, but riders require minimal underwriting compared to separate policies, making them a cost-effective option for customizing your insurance coverage.

Key Takeaways

Understand this: a rider is an insurance policy provision that adds or alters coverage, offering customization to suit specific needs. Riders come at an extra cost, but they often provide more benefits than the standard insurance policy alone. You'll find common types like long-term care, term conversion, waiver of premium, and exclusionary riders. Adding riders can enhance savings by providing additional coverage without needing a separate policy. It's crucial to assess if a rider duplicates existing coverage in the basic policy before you purchase it.

How Insurance Riders Enhance Coverage

Some policyholders have specific needs not covered by standard insurance policies, so riders help you create insurance products that meet those needs. Insurance companies offer supplemental insurance riders to customize policies by adding varying types of additional coverage. Insurance riders can save you money by avoiding a separate policy and offer options to add coverage later.

Consider this example: if you're an insured person with a terminal illness and you add an accelerated death benefit rider to your life insurance policy, this rider provides you with a cash benefit while living. You may use these funds however you wish, perhaps to improve your quality of life or to pay for medical and final expenses. When you die, your beneficiaries receive a reduced death benefit, minus the amount used under the accelerated death benefit rider.

Buying an insurance rider is up to you, the insured party, who should weigh the cost against your individual needs. Riders can be attractive but cost extra, in addition to the policy premiums. Certain homeowner insurance policies come with extra earthquake riders, but if you don't live near a fault line, you probably don't need this additional coverage. Another thing to consider: a rider may duplicate coverage, so it's important to look over the basic insurance contract.

Important Advice

Before adding a rider to an insurance policy, you should weigh the cost of the rider and decide whether you really need it. It is also wise to check that the rider does not duplicate coverage already included in the basic policy.

Different Types of Insurance Riders Explained

Riders come in various forms, including long-term care, term conversion, waiver of premiums, and exclusionary.

Long-Term Care Rider

Long-term care (LTC) coverage is often available as a rider to a cash value insurance product, such as universal, whole, or variable life insurance. A rider can address specific long-term care issues. The funds reduce the policy's death benefit when they are used. Designated beneficiaries receive the death benefit less the amount paid out under the long-term care rider.

In some cases, your needs may exceed the total benefit of the life insurance policy. So it may be more advantageous to purchase a stand-alone LTC policy. If the LTC rider is unused, you save on costs when compared to purchasing a stand-alone LTC policy.

Term Conversion Rider

Term life insurance provides coverage for a limited time, typically 10 to 30 years. Once the policy expires, you are not guaranteed new coverage at the same terms. Your medical condition may make it difficult or impossible to obtain another policy.

A term conversion rider allows you to convert an existing term life insurance to permanent life insurance without a medical exam. This is typically favorable to young parents seeking to lock in coverage to protect their families in the future.

Waiver of Premium Riders

This rider is generally available only when the policy begins and may not be available in every state. Under the waiver of premium rider, you are relieved of premium payments if you become critically ill, disabled, or seriously injured. Adding this rider might require meeting age or health conditions.

Exclusionary Riders

Exclusionary riders restrict coverage under a policy for a specific event or condition. Exclusionary riders are mainly found in individual health insurance policies. For example, coverage can be restricted for a preexisting condition detailed in the policy provisions.

Since September 2010, the Affordable Care Act (ACA) has banned exclusionary riders for children's insurance. Exclusionary riders have not been permitted in any healthcare insurance since 2014.

Real-World Example of How a Rider Works

A typical homeowners' insurance policy includes coverage for structural damage, personal property damage or loss, and personal liability coverage. However, each standard protection is also subject to coverage limits or restrictions. A rider broadens the standard coverage.

For example, an expensive piece of jewelry can be protected by extending personal property coverage through a scheduled personal property rider. A homeowner's policy may have a coverage limit of $50,000 for personal property, but it might also have a sub-limit of $1,500 for jewelry. If valuable jewelry is stolen or damaged by a fire, you would only be reimbursed up to $1,500 to help replace it. A rider would extend the reimbursement amount for certain valuable items.

Fast Fact

A standalone insurance policy will typically offer more coverage than a rider. Thus, check with an insurance expert whether you should invest in a whole new policy rather than rely on a rider for coverage.

What Is a Rider in Insurance?

An insurance rider is an adjustment or an add-on to a basic insurance policy. Riders are designed to provide additional benefits over the stated coverage in the basic policy. A rider is useful for tailoring an insurance policy to the precise needs of the insured entity.

Does a Rider Cost More Money?

A rider is added to an existing policy in exchange for a fee payable to the insurer.

What Are the Benefits of a Rider?

Riders allow insurance policies to be tailored to meet your needs. For example, if you're a homeowner, you might need additional personal property insurance if you have certain valuable items, or you may need additional structural insurance if you live in a region where inclement weather is a threat to your home. Life insurance riders allow you to purchase more insurance as you age. Doing so might be cheaper than going through the typical underwriting process required for a new policy. Also, some insurance policies allow for the accumulation of cash value for the policy on a tax-deferred basis.

How Can I Drop an Insurance Rider?

Most insurance companies will allow you to drop a rider from a policy simply by filling out a form that authorizes its removal.

The Bottom Line

Insurance riders offer you the opportunity to customize your coverage to better meet your unique needs, whether for life, home, auto, or rental insurance. They can provide additional protection or restrict coverage, but they come at an extra cost beyond the basic policy premiums. Riders such as long-term care, term conversion, waiver of premiums, and exclusionary riders serve specific purposes, helping align insurance policies more closely with your circumstances. However, it is crucial to evaluate whether a rider truly enhances your policy without duplicating existing coverage. Consulting with an insurance expert can help determine if a rider, or even a standalone policy, is the most effective way to address your specific insurance needs.