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.

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