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.
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.
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?
The Basic 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.
However, you will need to purchase a rider for your policy to cover 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.
Enter the Insurance Rider
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.
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.
Examples of Riders
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.
Health Insurance – If you have 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 may deny coverage or greatly increase your insurance premium.
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.
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.
Again, there is no shortage of 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.