What Are Insurance Riders?
A rider — also known as an insurance endorsement — is an optional provision that can alter the coverage of a standard insurance policy. Riders add benefits to a policy or amend the terms of an existing one. This allows for policy holders to customize their coverage without having to cancel their old policy — but it usually comes with an added cost.
Riders are available for life, homeowners, long-term disability and auto insurance policies, among others. Read on to learn more about the subtleties of different types of insurance riders, and how to decide if signing up for one is right for you.
What You Should Know
Put simply, riders help policyholders customize their insurance.
Riders aren’t standalone products — they’re provisions to existing insurance policies, and their availability depends on state regulations and guidelines set forth by the insurance company itself. They’re also not “floaters,” a separate insurance product that increases coverage on certain items.
Some riders, like life insurance term conversion, can be included on your policy at no cost, while others require paying an additional premium.
When you purchase an insurance policy, riders allow you to add on special benefits to fit your evolving circumstances and priorities.
If you’re the sole breadwinner in your family, adding a family income rider to your life insurance policy can provide your spouse and children with a monthly paycheck — equivalent to your current income — in the event of your death. If you’re looking to reduce the hassle of car breakdowns, adding a roadside assistance and towing rider to your auto insurance allows you to summon service with a single phone call.
Since most riders come at a cost, the decision to add them to your policy should depend on your budget and the value of the additional coverage they provide. In many cases, riders can be worth the added expense.
Adding a rider (or riders) to your term, whole or universal life insurance policy can increase the security the policy provides.
Most life insurance companies offer at least some rider options. Here’s a list of the most common options available:
Accidental Death and Dismemberment (ADD) is the most common death benefit rider. It pays out an additional amount, on top of the regular death benefit, if the policy holder dies in an accident or loses bodily function. This rider could especially suit those who have high-risk jobs or engage in risky hobbies such as skydiving or scuba diving.
Living Benefit is sort of like a financial cushion, in that it helps policy holders weather unexpected circumstances like chronic illness or injury. Living benefits allow part or all of a death benefit to be paid while the policy holder is still alive. Coverage varies by insurance company and the state where it was issued.
Family Income pays a policy holder’s death benefit over a period of time rather than in a lump sum. This is a good option if the policy owner is concerned about their beneficiary’s ability to budget a lump-sum benefit.
Children’s Term includes coverage for children in a guardian's policy. If the covered child dies within the term of the policy, the guardian receives a death benefit. When the child reaches a certain age, typically between 21 and 25, the rider allows the child benefit to be converted to a permanent life policy without requiring a health exam or questionnaire. The children's term rider (CTR) can usually be converted for up to five times the amount of the rider, so a $25,000 CTR can be converted to a permanent life policy worth $125,000.
Return Of Premium (ROP) refunds the premiums you’ve paid if you outlive its term. It typically doubles or triples the amount you pay for insurance every month, so it’s not the most affordable option.
Guaranteed Insurability allows you to purchase additional life insurance at specific future dates without having to answer any health questions or take an exam, even if your health changes.
Waiver of Premium gives you the option to waive premium payments if you become seriously ill, injured or disabled.
Term Conversion allows you to convert your term life policy into a permanent life policy within a specified period. It belongs to a type of benefit called “structure riders,” which modify the terms of the policy itself rather than adding to it.
Riders on homeowners insurance policies expand your coverage limits, increase coverage for certain high-value items and extend protection to cover against some unexpected perils of owning a home.
There are two main types of homeowners insurance: HO-3 policies, also known as “special form,” and HO-5 policies, aka “comprehensive form.”
HO-3 policies typically cover policyholders against specific risks like fire, water and mold damage. HO-5 policies, on the other hand, operate on an “open-perils” basis, meaning all damage to the home or property is covered as long as it’s not on the plan’s list of exclusions.
Riders to both of these types of policies increase the level of coverage for things that aren’t part of the baseline policy, like jewelry, artwork and businesses operated from home.
Here are some of the most common homeowner insurance riders available:
Scheduled Personal Property Coverage offers expanded coverage for high-value items like antiques and jewelry.
Water Backup Coverage provides coverage for water damage caused by a backed-up drain or sump pump. (Note, however, that this rider doesn’t cover damage from water that floods into the home from heavy rains, overflowed rivers or ocean storm surges. Those “perils” require a separate flood insurance policy.)
Building Code Coverage, which is particularly relevant for owners of older homes, covers the costs of bringing houses up to current building codes.
Business Property Coverage protects designated business property (like computers) that a standard HO-3 policy doesn’t cover.
Identity Theft Restoration Coverage provides coverage in the event that your identity is stolen.
Strictly speaking, auto insurance has no riders. Instead, policyholders can choose to purchase "optional coverage." The difference is mostly semantics: much like riders, optional coverage provides added protection at an extra cost. Keep in mind, however, that standard auto coverage varies by company. Make sure you know what is and isn't already included under your auto policy before you purchase additional protection.
Here are some optional coverages to add to your policy:
Rental Car Reimbursement covers most of the cost of a rental car while your own vehicle is being repaired due to a covered accident. (Your insurer will typically cover you when renting a car for other reasons, though you’ll still have to pay a deductible.)
Roadside Assistance offers extended protection for things like flat tire replacement, lost key recovery, battery jump start and car towing. Unlike third-party services like AAA, roadside assistance offered by your insurer typically doesn’t cap the number of service calls you can make.
Long-term Disability Insurance
Most employers offer disability insurance, often for free, but workplace coverage usually runs out after about six months. Coverage beyond that requires a long-term disability policy, which you usually have to buy yourself.
Here are some riders that enhance long-term disability (LTD) policies or provide certain relief from paying premiums:
Guaranteed Renewable assures your policy will not be canceled as long as you are paying the premiums. This rider comes standard with most long-term disability policies or can be added at no extra cost.
Waiver of Premium allows you to stop making monthly payments while you’re waiting on a claim.
Automatic Increase Benefit increases your monthly benefit to match pay increases, without having to undergo additional underwriting.
Presumptive Total Disability pays out the full benefit if you become physically disabled. With this rider, you’re generally paid from the first day of such a disability.
Family Care Benefit pays out your benefit in full if you need to take time off work to care for a loved one.
Survivor Benefit or Death Benefit gives your beneficiary a payout if you die while on a disability claim. (This benefit shouldn’t be used as a replacement for life insurance.)
Good Health Benefit reduces the elimination period — the time between an injury and the receivement of payments — by two days each consecutive year you go without a claim.
Occupational Rehabilitation pays for vocational rehabilitation after disability to help you return to work.
Own Occupation modifies the qualifications of a claim to fit your specific occupation.
Student Loan riders cover your loan payments if you’re out of work due to a disability (these are most frequently used by people who start off their careers with both high income and high student debt, like attorneys and doctors.
Cost-of-living Adjustment (COLA) increases your monthly benefit using the Consumer Price Index while you’re collecting disability insurance. (This can be a costly add-on.)
Catastrophic Disability Benefit pays out an additional benefit in the event of a catastrophic disability that keeps you from performing at least two activities of daily living, like eating and bathing.
Return of Premium gives you back a percentage of the money you’ve paid on premiums if you cancel your policy (usually at a steep price.)
Types of Riders
Insurance policies often come with the option to add specific riders to customize the coverage to the policyholder's specific needs. These riders work as additional insurance to the base policy, providing extra coverage for certain situations. The types of riders available can vary greatly depending on the insurance company and the type of insurance policy. Some of the most common types include long-term care riders, term conversion riders, waiver of premium riders and exclusionary riders.
Each type of rider offers a unique set of benefits and can significantly impact the coverage amount and cash value of the insurance policy. When thinking about life insurance as an investment, think about whether you need any of the various sorts of riders. Adding a rider to an insurance policy frequently results in an increase in insurance rates, so you have to balance the advantages against the added expense.
Long-term Care Rider
As the name suggests, a long-term care rider covers the cost of long-term care services. This can apply to home health care, assisted living facilities and nursing homes. The rider enables the policyholder to receive a portion of their death benefit early to aid with long-term care expenses in the event they become necessary.
For people who are concerned about the possible financial burden of long-term care, the long-term care rider is a useful supplement. It provides a means of obtaining long-term care insurance without having to buy a different policy. Just remember, though, that adding and using the long-term care rider will reduce the death benefit for your beneficiaries.
Term Conversion Rider
A term conversion rider enables the policyholder to convert their term life insurance policy into a permanent life insurance policy, such as whole life insurance, without a medical exam. This can be beneficial if the policyholder's health changes during the term of the policy, as it allows them to maintain coverage without the need for further health checks.
The term conversion rider provides flexibility and peace of mind, knowing that coverage can be extended if necessary. However, converting to permanent coverage usually results in higher premiums, so you will need to consider the financial implications of making the conversion.
Waiver of Premium Rider
The waiver of premium rider waives the insurance premiums in the event that the policyholder becomes extremely ill or incapacitated and is unable to work. It maintains the policy even though the policyholder is unable to make payments.
In the case of a major illness or incapacity, this kind of rider offers financial protection. It gives the policyholder peace of mind at a trying moment by ensuring that their coverage remains. Before signing up, you should understand the provisions of the rider because different companies may have specific situations for which the waiver can apply.
Exclusionary riders are a type of insurance policy rider that excludes coverage for specific conditions or activities. For example, an insurance company might add an exclusionary rider to a policy if the policyholder has a pre-existing condition, or if they participate in high-risk activities.
While exclusionary riders can limit the coverage of the policy, they can also make insurance more affordable for individuals who might otherwise be deemed too high-risk to insure. Take a good look at the fine print to ensure you're aware of what is and isn't covered.
Are Riders Worth the Expense?
According to insurance expert Chris Abrams, adding riders to your insurance policy is a gamble. “Your risk is paying more up front, but you will be relieved if you ever need it. If you add a rider and never use it, then you paid for something you didn’t need. Since we don’t know what the future holds, insurance — with or without riders — provides peace of mind.”
Another risk is that the cost of a rider may rise over time. As with premiums for the policy itself, riders and optional coverages may fluctuate in price from year to year. The changes may be affected by the frequency of claims filed in your area the previous year.
Insurance Riders FAQs
Does a rider cost more money?
For example, a long-term care rider might cost more than a waiver of premium rider due to the potentially high cost of long-term care services. Similarly, a term conversion rider, which allows a term life insurance policy to be converted into a permanent life insurance policy, might increase the insurance premiums due to the extended coverage. Get an insurance quote for any riders you're considering to understand the potential cost and weigh it against the additional coverage provided.
What are homeowners insurance riders?
A homeowner might add a rider to their policy to cover a valuable piece of jewelry or artwork that exceeds the coverage amount for personal property in their base policy. Similarly, a homeowner in an area prone to flooding might add a flood rider to their policy, as flood damage is typically not covered by standard homeowners insurance. Understanding the specific needs of your home and possessions can help you determine which homeowners insurance riders might be beneficial for you.
How to add Riders to your Policy
According to the National Association of Insurance Commissioners, you can add riders to your insurance policy at any point in time, whether that be upon purchasing the policy, halfway through the current policy term, or even as your policy renewal period is approaching.
If you're learning about what insurance riders are and whether or not you should buy them, remember that the objective is not to find the most coverage, but the appropriate coverage for you — which may change and evolve over time. Reaching out to your insurance agent at least twice a year is a good rule of thumb to keep your policies up to date with your evolving priorities. “If you see a pressing need, definitely reach out to your agent directly and ask for their advice, and if you can, address the concern immediately” explains France.