What Is an Insurance Rider?
An insurance rider provides the policyholder extra protection beyond the provisions contained in a standard insurance agreement. Before purchasing the additional coverage, the buyer should read the coverage outlined in the standard policy and ask questions about any terms or clauses that he does not understand. A buyer should determine if the additional coverage enhances the overall policy and if it meets his needs.
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Function
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Insurance riders are not independent or standalone products, but enforceable provisions only when attached to a conventional insurance policy. For example, a policyholder may purchase a term life insurance policy as part of an attachment to a permanent whole life policy.
Considerations
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Insurance riders amend the coverage of basic insurance. Although most riders supplement an existing insurance policy, they can also reduce the amount or type of coverage outlined in a particular policy. Policyholders should weigh the cost of the extra coverage versus the added benefit. Decide if the rider's value justifies the additional cost. Alternatively, consumers may eliminate coverage they do not need. For example, if the basic provisions of a life insurance policy are appealing but do not fit into a budget, a consumer may inquire about adding a rider that reduces the amount of the coverage.
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Types
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Most insurance products have their own unique riders. Life insurance policyholders have the option of adding riders, such as accidental death, guaranteed insurability, waiver of premium or family income benefit. Basic property-insurance policies offer additional coverage for personal property, second homes, home businesses or electronics. Rental reimbursement, towing and roadside assistance make up some of the most common riders offered for vehicle insurance policies. Heath insurance riders include prenatal care, maternity care and dental and vision care.
Misconceptions
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Certified Financial Planner Mark P. Cussen writes for Investopedia.com, that one the biggest misconceptions people have about term insurance involves paying the additional premium for a return-of-premium rider (ROP) when purchasing a term life insurance policy. He states that most financial-service planners believe that ROP riders do not represent the most cost-effective way to spend money and to avoid buying them. Mr. Cussen advises consumers to conduct a cash-flow analysis to determine if they would benefit by purchasing the rider.
Expert Insight
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People must exercise caution before paying additional premiums for life insurance riders, according to insurance.com, especially "for events that almost never happen." Insurance.com claims that many life insurance riders duplicate coverage. The Health Insurance Advisors website says that insurance riders bring insurance companies hefty profits, so insurance buyers should expect the agents to push the products. Make sure you absolutely need the additional coverage. If unsure about the wisdom of purchasing additional coverage, you can always add the rider later.
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References
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