What is a 'Rider'

A rider is an add-on provision to a basic insurance policy that provides additional benefits to the policyholder at an additional cost. Standard policies usually leave little room for modification or customization beyond choosing deductibles and coverage amounts. Riders help policyholders create insurance products that can meet their specific needs.

BREAKING DOWN 'Rider'

For example, in the event of a terminal illness, an accelerated death benefit rider on a life insurance policy would provide the insured with a payout while he was still alive. The insured could use these funds to pay for medical expenses and to increase the quality of his remaining life. When the insured passes away, his beneficiaries receive a reduced life insurance benefit, since the rider allowed the insured to use a portion of the policy early.

Some policyholders have specific needs that are not covered by standard insurance policies. Additionally, policyholder insurance needs typically change over time. To prepare for these contingencies, insurance companies offer supplemental insurance riders to customize policies by adding different types of additional coverage and protection. The benefits of insurance riders to policyholders include savings compared to purchasing another separate policy and the option to buy different coverage at a later date.

Long-Term Care Rider

One way to obtain long-term care (LTC) coverage is an add-on to a cash value insurance product such as universal, whole or variable life insurance. Specific LTC coverage terms can be included in the life insurance rider. If the LTC coverage is used, the funds come out of the policy death benefit. The policy beneficiaries get the remainder of the funds when the policyholder dies. However, if the policyholder needs long-term care over several years, the LTC rider coverage may be exhausted. In that scenario, it could be more advantageous to purchase a standalone LTC policy. The policyholder saves money over buying separate LTC coverage if the LTC rider coverage is not used.

Term Conversion Rider

Term life insurance or provides coverage for a limited time period, typically 10 to 30 years. After that period expires, the policyholder is not guaranteed coverage at the same terms. The policyholder's medical condition at the end of the term life insurance policy could make it difficult to obtain another policy. A term conversion rider allows the policyholder to convert an existing term life insurance to permanent life insurance at a later date without a medical exam. This rider offers a good way for young parents to lock in coverage to protect their families in the future.

RELATED TERMS
  1. Future Purchase Option

    A feature of long-term disability insurance that allows policyholders ...
  2. Family Income Rider

    An addition to a life insurance policy that provides the beneficiary ...
  3. Living and Death Benefit Riders

    Living and death benefit riders are a descriptive class of contractual ...
  4. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  5. Automatic Additional Insured

    Additional insurance coverage that is automatically included ...
  6. Assessable Policy

    A type of insurance policy that may require the policyholder ...
Related Articles
  1. Insurance

    Let Life Insurance Riders Drive Your Coverage

    Find out how these additional benefits can help you customize your policy.
  2. Financial Advisor

    A Closer Look At Accelerated Benefit Riders

    Accelerated benefit riders can allow policy holders to access the death benefit in their life insurance policy while they are still living if they meet certain conditions. Knowing what you get ...
  3. Financial Advisor

    Should You Buy A Life Insurance Disability Rider?

    Does it make sense to pay an additional cost for a waiver of premium rider on a life insurance policy?
  4. Financial Advisor

    Why to Buy Term Life Insurance with a Conversion Option

    Why you should always purchase a term life insurance policy that allows for an unrestricted conversion option.
  5. Insurance

    How Long-Term Care Riders on Life Insurance Work

    What is the difference between Accelerated Death Benefit for Chronic Illness and Long-Term Care Riders offered on life insurance policies?
  6. Retirement

    Understanding Different Types of Life Insurance

    Understand the various types of life insurance, how each can be used in personal or business financial planning, and for whom they are best-suited.
  7. Insurance

    Top 10 Life Insurance Myths

    The most difficult aspect of this complex product is determining how much coverage you need and why.
  8. Insurance

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  9. Financial Advisor

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  10. Personal Finance

    Are Return-Of-Premium Riders Worth It?

    Find out if this policy coverage will add money to your pocket, or cost you in the long run.
RELATED FAQS
  1. Why would you want a monthly benefit versus a daily benefit?

    An insurance benefit is the amount of money paid to or on behalf of the policyholder. Depending on what kind of insurance ... Read Answer >>
  2. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  3. What is a convertible insurance policy?

    A convertible insurance policy is a term usually related to life insurance. To understand a convertible policy, you must ... Read Answer >>
  4. What are some examples of when insurance bundling is a bad idea?

    Learn about situations where insurance bundling may not be a favorable option. Bundling insurance is often a good idea, but ... Read Answer >>
  5. What is term insurance?

    Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center