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 options such as additional coverage, or they may even restrict or limit coverage.

There is an additional cost if a party decides to purchase a rider. Most are low because they involve very little underwriting.

A rider is also referred to as an insurance endorsement. It can be added to policies that cover life, homes, autos, and rental units.

Understanding Riders

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 insurance riders to customize policies by adding varying types of additional coverage. The benefits of insurance riders include increased savings from not purchasing a separate policy and the option to buy different coverage at a later date. 

Say an insured person has a terminal illness and adds an accelerated death benefit rider on a life insurance policy. This rider would provide the insured with a cash benefit while living. The insured may use these funds how she wishes, perhaps to improve her quality of life or to pay for medical and final expenses. When the insured passes away, her designated beneficiaries receive a reduced death benefit—the face value less the portion used under the accelerated death benefit rider.

Buying an insurance rider is up to the insured party, who should weigh the cost against his or her individual needs. Although riders may sound appealing, they come at a cost—on top of the premiums for the policy itself. Certain homeowner insurance policies come with extra earthquake riders. Someone who doesn't live near a fault line probably doesn't need this additional coverage. Another thing to consider: a rider may duplicate coverage, so it's important to look over the basic insurance contract.

[Important: In most cases, riders cover events and issues that may never occur.]

Riders come in various forms including:

  • Long-term care
  • Term conversion
  • Waiver of premiums
  • Exclusionary

Long-Term Care Rider

Long-term care (LTC) coverage is often 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 they are 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. So it may be more advantageous to purchase a stand-alone LTC policy. If the LTC rider is unused, the policyholder receives a cost saving compared to the costs associated with purchasing a stand-alone LTC policy.

Term Conversion Rider

Term life insurance provides coverage for a limited time period, typically 10 to 30 years. Once the policy expires, the policyholder is not 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 to 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 time the policy begins and may not be available in every state. Under the waiver of premium rider, the insured party is alleviated of making premium payments should the policyholder become critically ill, disabled, or seriously injured. There may be certain requirements to add this rider such as age limits and certain health requirements.

Key Takeaways

  • A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy such as additional coverage.
  • Riders come at an extra cost—on top of the premiums an insured party pays.
  • Riders come in various forms including long-term care, term conversion, waiver of premiums, and exclusionary riders.

Exclusionary Riders

Exclusionary riders restrict coverage under a policy for a specific event or condition. Exclusionary riders 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 prohibited exclusionary riders from being applied to children. Exclusionary riders have not been permitted in any healthcare insurance since 2014.