Rider: Definition, How Riders Work, Types, Cost, and Example

What Is a Rider?

A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. Riders provide insured parties with additional coverage options, or they may even restrict or limit coverage. There is an additional cost if a party decides to purchase a rider. Most riders are low in cost because they involve minimal underwriting. A rider is also referred to as an insurance endorsement and can be added to policies covering life, homes, autos, and rental units.

Key Takeaways

• A rider adds benefits to or amends the terms of a basic insurance policy for additional coverage.
• Riders tailor insurance coverage to meet the needs of the policyholder.
• Riders come at an extra cost in addition to the premiums.
• Riders come in various forms, including long-term care, term conversion, waiver of premiums, and exclusionary riders.
• In some cases, a policyholder may not be able to add a rider after initiating the policy.

Understanding a Rider

Some policyholders have specific needs not covered by standard insurance policies, so riders help them create insurance products that meet those needs. Insurance companies offer supplemental riders to customize policies by adding varying types of coverage. The benefits of riders include increased savings from not purchasing a separate policy and the option to buy different coverage later.

For example, if an insured person has a terminal illness, they can add an accelerated death benefit rider to a life insurance policy. This rider provides the insured with a cash benefit while they’re alive. The insured can use these funds to improve their quality of life or pay for medical and final expenses. When the insured passes away, their beneficiaries receive a reduced death benefit—the face value less the portion used under the accelerated death benefit rider.

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

Types of Riders

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 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 used. Designated beneficiaries receive the death benefit less the amount paid out under the long-term care rider.

In some cases, the policyholder’s needs may exceed the total benefit of the life insurance policy. It may be more advantageous to purchase a stand-alone LTC policy. If the LTC rider is unused, the policyholder saves costs 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, the policyholder may not be guaranteed new coverage at the same terms. The policyholder’s medical condition may make it difficult or impossible to obtain another policy.

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

Waiver of Premium Riders

This rider is generally available only at the start of the policy and may not be available in every state. Under the waiver of premium rider, the insured party is relieved of premium payments if the policyholder becomes critically ill, disabled, or seriously injured. There may be requirements to add this rider, such as age limits and certain health requirements.

Exclusionary Riders

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

As of September 2010, the Affordable Care Act (ACA) prohibited exclusionary riders from being applied to children. Exclusionary riders have not been permitted in any healthcare insurance since 2014.

Example of a Rider

A typical homeowners insurance policy includes coverage for structural damage, personal property damage or loss, and personal liability coverage. However, each standard protection is 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 homeowners 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, the policyholder would only be reimbursed up to $1,500 to help replace it. A rider would extend the reimbursement amount for certain valuable items.

A standalone insurance policy typically offers 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.

Rider Insurance FAQs

What Is a Rider in Insurance?

An insurance rider is an adjustment or addition to a basic insurance policy. Riders provide additional benefits beyond the stated coverage in the policy. Riders are 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 the needs of the policyholder. They provide additional coverage for specific situations, such as valuable items or changes in health. Also, some insurance policies allow for the accumulation of cash value on a tax-deferred basis.

What Are Homeowners Insurance Riders?

Riders for homeowners include:

Scheduled personal property coverage: Extends coverage for valuables, such as jewelry and antiques, and protects them against additional risks not covered by a standard homeowners policy, such as loss or misplacement.

Water backup coverage: Covers the cost of water damage from a backed-up drain or sump pump, which may not be covered by a homeowner’s policy.

Building code coverage: Pays the additional cost of bringing a home up to code after a covered claim if it doesn’t meet building code standards.

Business property coverage: Provides additional coverage to protect business equipment or products stored in a home used for business purposes.

Identity theft restoration coverage: Ensures policyholders are reimbursed for any expenses if their identity is stolen.

How Can I Drop an Insurance Rider?

Most insurance companies allow you to drop a rider from a policy by filling out a form authorizing its removal.

Most insurance companies allow you to drop a rider from a policy by filling out a form authorizing its removal.