Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Oct 26, 2021

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Insurance Q&A: “What is an insurance rider?”

Similar to an insurance endorsement, a rider is a provision added to a policy that adds additional coverage beyond what is offered on the standard coverage form. Insurance companies offer a variety of different riders generally to get around exclusions or to add coverage for unusual or high-risk liabilities.

But why is this necessary? Why doesn’t the policy simply cover everything? Good questions. The answer is quite simple. Not everybody has the same risk factors. If all policies were issued to cover every risk, they would cost too much for the average homeowner or other insurance beneficiary. So instead, insurance companies cover the most common risks that fit within a standard financial limit and then offer other coverages on a premium rider.

There may be coverage you need that another doesn’t, or vice versa. Would you rather pay more for insurance coverage you don’t need, or add it only if you need it?

What should you expect on a basic insurance policy?

The basic policy form, whether auto, home, life or health, contains coverage that is reasonably expected to be necessary by the broadest group of people possible.

For example, a homeowners insurance policy always contains coverage for the home’s contents. You don’t have to ask for it. It’s assumed we all have personal property inside our homes. You can choose varying amounts into the hundreds of thousands of dollars. You don’t have to add up all your belongings, but know that between your clothing, furniture, and other belongings, they add up quickly.

What your personal property coverage will not cover is your $25,000 diamond ring – an item we can certainly agree requires special coverage and is not necessarily a “common” item in a U.S. home. For any single large-value item like that, you would need an insurance rider to account for the additional costs.

[Is jewelry covered under homeowners insurance?]

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Can you get rider insurance with just riders?

The rider you purchase is an additional option to the basic policy. It is not a standalone insurance policy. In fact, you wouldn’t want it to be if you can avoid it. If you were to try to breakdown common coverages into riders, you’d also end up paying much more overall. There is an additional benefit in terms of paperwork that comes with combining all the moving pieces into one policy.

Why? There are base costs associated with each policy an insurer issues. These include underwriting costs, paperwork, postage and so on. These costs are “built in” to each policy an insurer sells.

Two separate policies equals separate “costs” for you. It’s often easier and more cost effective to add coverage to an existing policy rather than to purchase two.

What do insurance riders look like for the insured?

Let’s take a look at one of each to give you a basic idea of what’s available out there. Keep in mind there are probably hundreds (or more) riders available in the insurance marketplace.

Car Insurance – Rental reimbursement and towing coverage are two good examples. The basic auto insurance policy does not include this coverage…you have to add it. Generally, these auto riders are extremely affordable costing just a few dollars a month per rider.

Health Insurance – It used to be that if you had a pre-existing health condition, a rider excluding the issue may be put in place to allow you to qualify for coverage. Without this rider, the insurer could deny coverage or greatly increase your insurance premium. With changes in the healthcare system, insurance companies cannot deny you coverage for pre-existing conditions. But if you have a history of cancer, diabetes, etc., you may want to check in with your insurer to see what options you have while keeping your premium payments reasonable.

Home Insurance – Perhaps you own two homes and want to extend your liability coverage from your primary residence to your second home. This can be accomplished with a rider. You can also add things like windstorm coverage with rider insurance. Homeowners policies for single family residences come in 2 main forms: all risk or named perils. With an all risk policy, you’d have to add riders or make other adjustments for anything specifically excluded. With a named perils policy, it’s not covered unless the peril is specifically named.

Life Insurance – Accidental death coverage may be added to the basic life insurance policy. Perhaps the benefit is doubled if you die as a result of an accident. You can add riders for terminal illness, suicide, and much more. If you’re denied by a more conservative life insurance company after a medical exam, you may need to pay to add a rider.

Again, there is no shortage of life insurance riders out there. Be sure to clarify exactly what coverage you have on your basic policy before entertaining the rider. You might already be covered adequately and not need to pony up the extra cash.

Also, make sure you understand the rider you’re looking at. It may be more or less restrictive than the existing coverage.

Yes, you read that right. Riders may also exclude coverage as a way to save you money. Be very careful with riders that are restrictive in nature.

Saving a few bucks may sound like a good idea when buying your policy, but you don’t want to hear, “You’re not covered” come claim time.