Most insurance policies (life, disability, long-term care, home, auto, etc.) are customizable. A well-trained insurance agent will present to you the base policy and then give you a menu of “riders” that you can add to create a policy that best meets your needs.
Jump ahead to these sections:
- Definition of an Insurance Rider
- How Do Riders for an Insurance Policy Work?
- Different Types of Insurance Riders
- How Do You Know If an Insurance Rider Is Worth It?
- Can You Add an Insurance Rider at Any Time?
Unfortunately, not all agents present rider options to prospective clients; they sell the base policy and never mention any riders. This withholding of information could leave the new client in a precarious position later on if something unexpected happened that a rider would have covered.
Many people don’t ask about riders because they don’t know much about them. This article will make sure that doesn’t happen to you. We’ll define what a rider is, describe how they work, give details on some different types of riders you should be looking for, examine if they’re worth adding to your policy, and more.
Definition of an Insurance Rider
Riders are optional additions to an insurance policy that provide additional benefits or coverage you wouldn’t receive otherwise. They help you personalize your insurance policy to fit your needs and your family's needs.
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How Do Riders for an Insurance Policy Work?
When you add a rider to an insurance policy, you’re adding an extra layer of protection to your policy. According to the policy, which is a legal and binding contract, the insurance company will pay a benefit to you or your family when an event triggers that rider.
For example, if you buy a life insurance policy that contains a “disability waiver of premium rider,” the insurance company must waive your premium payment if you become injured or ill and can’t work until you can return to work.
Different Types of Insurance Riders
As insurance companies have evolved, they have supplemented many of their policies with riders that can be beneficial under the right circumstances. Some types of insurance don’t offer many riders, if any at all. For example, critical illness insurance typically doesn’t provide any rider, nor does guaranteed issue life insurance.
But some insurance policies are highly customizable because of the large assortment of riders available. Let’s look at some different kinds of insurance and the riders that most insurance companies make available.
Life insurance riders
Life insurance companies offer a wider range of riders for their policies than any other type of insurance does. These are some riders you want to take a look at the next time you’re buying a life insurance policy:
Long-term care insurance rider: There are standalone, long-term care insurance policies you can buy and life insurance policies that offer long-term care riders. It’s more expensive to buy a policy with a long-term care rider. Still, it has one advantage over standalone long-term care policies: you can’t outlive the benefits, even if the long-term care costs are more than the original death benefit of your life insurance policy.
Spousal insurance rider: If your spouse dies, this rider pays a death benefit to a named beneficiary. Many people don’t purchase this rider if their spouse doesn’t work outside the home, but they fail to consider that they’ll still have to cover the costs of childcare and household work if they die.
Child insurance rider: Many people are reluctant to insure their children's lives. Some feel it's inappropriate to be financially compensated when one's child passes away. Others think it wouldn't be a financial hardship if a child were to die, but that often leaves them unprepared or unable to pay for unforeseen expenses caused by the death (funeral, burial, etc.). With the average cost of final expenses averaging just under $10,000, that can be a heavy financial burden to bear in an already challenging time.
Chronic illness rider: You don’t have to die to receive benefits from your policy. A chronic illness rider will pay out some of your policy’s death benefit if you’re unable to perform at least two of the six Acts of Daily Living (ADL):
In order for the rider to go into effect, a medical professional must certify that the condition is permanent.
Accidental death and dismemberment (AD&D) insurance rider: The AD&D rider pays a benefit if you die due to accidental causes. The dismemberment portion of the policy pays benefits to you if you lose a limb or digit in an accident. There are stringent parameters that must be adhered to for the insurance company to pay the claim.
Term conversion insurance rider: When your term policy expires because the length of time you chose to keep the policy in force is ending, this rider allows you to convert your term policy into a permanent life insurance policy, such as whole or universal life insurance.
The good news with this rider is that you don’t have to qualify medically for the conversion to be approved and a new policy issued. There’s no medical exam or medical questions to answer when you complete the paperwork.
Guaranteed insurability rider: This rider allows you to increase the amount of your death benefit without any proof of insurability. You’re allowed to do this at pre-established intervals specified in the policy for predetermined amounts. If you have a significant life event, like getting married or having a baby, an increase in the death benefit can be triggered automatically.
You’ll pay higher premiums as your death benefit increases, but you won’t be charged extra (rated) if your health has declined since you took out the original policy.
Disability insurance riders
Long-term disability insurance companies have also added additional riders as the industry has matured. Some of the riders agents recommend are:
Social Security offset rider: If you choose this rider, you agree to apply for Social Security disability insurance (SSDI) if you become disabled. It’s very difficult to qualify for SSDI, but if you do, your long-term disability insurance policy benefit will be offset (reduced) by the amount of money you’re receiving from SSDI.
Cost-of-living adjustment (COLA): This rider increases the insurance company's monthly benefit paid to you while claiming disability insurance benefits. The increase works in conjunction with the Consumer Price Index (CPI), another method of measuring costs.
Catastrophic disability benefit rider: Like the chronic illness rider in a life insurance policy, this rider pays an additional benefit if you have a catastrophic disability and cannot perform two of the six ADLs listed above.
Unemployment premium suspension rider: If you become unemployed, this rider suspends your disability insurance premiums, but you still own the policy. However, you won’t have any protection against becoming disabled from an accident or illness. Insurers recommend that you do not use this rider if you know that your unemployment is temporary.
Return of premium rider: Only some carriers offer this rider. If you cancel your policy, you’ll receive back a percentage of the premiums you paid; the percentages are written out in your policy (there are also return-of-premium life insurance policies).
Auto and homeowners insurance riders
You might hear a property and casualty insurance agent refer to a rider as an “endorsement.” Most insurers offer these optional riders with their homeowner’s insurance policies:
- Additional coverage: These riders add certain circumstances that will be covered, like having a home-based business.
- Increased limits: These increase the limits of something already covered in the policy, like theft coverage.
- Excluding certain claims: Some riders eliminate specific types of claims, such as those arising from having a certain type of dog (doberman, rottweiler, etc.).
Some examples of auto insurance riders are:
- New car replacement coverage: These can replace your car with the latest model in the event of a total loss.
- Rideshare coverage: Drivers for rideshare services like Uber and Lyft can get special coverage that supplements their personal auto policy. It’s sometimes referred to as “transportation network driver coverage.”
- Roadside assistance coverage: Roadside assistance covers breakdowns, flat tires, and replacement of a dead battery with a new battery when your car fails to start.
How Do You Know If an Insurance Rider Is Worth It?
Most agents are trustworthy and will help you determine whether or not a rider is worth it for you. They won’t push you to purchase a rider that won’t benefit you.
It’s preferable to work with an agent you were referred to by someone you know, but it’s not always possible. If you can, go for experience and work with an agent specializing in the type of insurance you’re buying for several years at a minimum.
If you do your homework, you can go into the conversation with the agent armed with some good questions that can steer you in the right direction with riders that will benefit you and away from those that won’t do anything but raise your premiums.
Consider asking these questions:
- Why do I need this rider?
- How much does it cost per month? Per year?
- Does it stay part of the policy permanently or temporarily?
- Do I have to pay for this ride if I become disabled?
- Can I drop it if I decide I don’t need it later on?
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Can You Add an Insurance Rider at Any Time?
Generally not, though there are exceptions. The reason is that insurance companies would lose a substantial amount of money by letting people add riders just before submitting a claim.
For example, if your term life insurance policy is about to expire and your health has declined since you took out the policy, the insurance company wouldn’t let you add a term conversion rider. The insurance company does this because of the increased risk they would assume.
Similarly, imagine somebody broke into your house and stole expensive jewelry. In a case like this, you couldn’t call your agent and add an endorsement for jewelry if the original policy didn’t cover that type of loss or had lower limits than you needed.
How Much is Peace of Mind Worth?
If your pet needed emergency surgery, would it be worth it to you if a rider on your pet insurance could save their life? Most pet owners would agree that they would rather have higher limits on the policy to get their pet the best possible treatment.
The same holds true for other types of insurance, within reason. You probably don’t need a rider that covers earthquake damage on your homeowner’s policy if you live in Indiana, but you would want it if you lived in California.
A rider is worth it if it makes economic sense to add it and gives you peace of mind. Many riders don’t add much additional cost to a policy and are worth having if you can afford them.