Insurance Rider

Updated on March 1, 2024
Article byJyotsna Suthar
Edited byShreeya Jain
Reviewed byDheeraj Vaidya, CFA, FRM

Insurance Rider Meaning

Insurance rider refers to the provision that acts like an addition made to the insurance policy at an extra cost. It is a voluntary addition made by the policyholder. The purpose of including this rider is to provide supplementary coverage to the person apart from the original policy.

Insurance Rider

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This rider serves as a valuable tool for the default policy. They enhance the current coverage of the insurance by providing add-ons. Thus, when a person buys an insurance rider policy, they can add other items usually not covered under the initial policy. Hence, the urge to take another policy disappears.

Key Takeaways

  • Insurance riders are additional provisions made to the existing policy to provide coverage against uncovered risks. They are also known as “add-ons.”
  • Riders must be added at the time of insurance purchase. It is not possible to access riders after buying them. However, the cost of these riders is economical and cheaper.
  • The different types of riders include accidental death, waiver of premium guaranteed insurability, term conversion, critical illness, and child-term.
  • Also, it is possible to customize these coverages. Moreover, there is no need to purchase separate insurance to add one more coverage.

Insurance Rider Explained

Insurance rider forms a vital component of insurance products that allows a person to add more features to the existing policy. They are like add-ons a person can make to their original insurance. And these items can be anything related to the current policy. For instance, if a person takes life insurance that does not provide accidental death as cover, they can add the latter as a rider. However, the insurance rider policy must occur at the time of purchase of the original policy. Only then it is possible to include a rider in the insurance. 

Therefore, the process of including a term insurance rider differs slightly from a policy purchase. Here, the person considering taking the insurance must decide on the type of rider prior. It can include any item which is not covered under the existing policy. Also, they must mention a brief description of the item that will be included. In other words, it is like an appraisal sent to the insurer for the rider required. However, the rider purchased today can be dropped or exchanged in the future if not needed. 

Once accepted, the insured pays an extra cost to cover an item that has a higher value. The cost of the term insurance rider is lower than that of other policies. The only reason for low pricing is the minimal underwriting. Since there are fewer items included as riders, the insurance companies have less scrutiny to perform. So, if a person takes a rider of assets like jewelry and cash, the cost will be a small percentage of it. However, it again depends on the type of rider and insurance policy.

Types

The rider comes in various forms that describe its usage in the insurance market. And they can occur in any insurance. Let us look at them in a detailed format:

#1- Accidental Death Rider

The policyholder usually includes this health insurance rider to cover the risk of accidental death. It is mostly taken in the case of health insurance, where this risk is not covered. Thus, in the event of such death, the policyholder receives a lump-sum amount. This amount is dual as it includes both the original claim and the rider claim.

#2- Long-term Care Rider

Compared to all, the long-term care rider acts differently in its function. It allows policyholders to use a part of their policy’s death benefit to pay medical expenses. However, the end amount receivable to policyholders may be reduced. 

#3- Term Conversion Rider

This life insurance rider allows the policyholder to convert the existing insurance into a permanent one. Also, no medical exam is needed for approval.

#4- Waiver Of Premium

It is the most important rider among others, focusing on the premium payments. In short, this health insurance rider allows policyholders to skip or waive premiums in critically ill or severe conditions. However, there are certain requirements for availing it. 

#5- Critical Illness Rider

As the name suggests, critical illness rider acts as an add-on in situations where the policyholder has a serious disease or illness. In such moments, this rider allows them to cover expenses at that stage. However, policyholders must show proof of diagnosis for this rider. 

#6- Guaranteed Insurability Rider

It allows policyholders to purchase coverage up to a certain age and rate. This rider is helpful mainly at times when one cannot afford it. 

#7- Child-term Rider

Here, the policyholder can take extra coverage for their kids in addition to their term life insurance policy.

Examples

Let us look at some hypothetical examples of insurance riders to understand it in a better manner:

Example #1

Suppose James is a corporate employee who wants to take health insurance for his family. So, he consults with one insurance company and makes a policy for his parents and himself. After a few years, he got married to Carol and had two kids. At this point, the latter insisted James buy separate insurance for them. But it would lead to additional costs for them. Therefore, James decided to take a new insurance with a child term rider.

This rider would include Carol as the policyholder and his kids as riders under the rider policy. So, in the later stages, if kids suffer from any illness, this coverage will include the expenses for them.

Example #2

Suppose Allen has taken out a mortgage on her home, and she is concerned about the financial implications her family might face in the event of her unexpected death. To address this concern, she decides to enhance her mortgage protection insurance policy with an “Accidental Death Benefit Rider.” This rider stipulates that if her death is the result of a covered accident, an additional benefit will be paid out to Allen’s beneficiaries on top of the standard death benefit.

This extra layer of coverage provides financial support to her family during a particularly challenging time. The rider allows her to customize her insurance policy to meet her specific needs, ensuring that her loved ones are better protected against unforeseen circumstances. It’s important to note that adding this rider may result in a slightly higher premium, but the added protection aligns with the goal of comprehensive financial security for her family.

Benefits

In addition to the above types and examples, let us now look at some benefits provided by riders to policy owners:

#1- Provides Extra Or Additional Coverage

The prime benefit of insurance riders is that a policyholder can deploy additional coverages in contrast to their original policy. So, the chances of taking another separate policy are eliminated. It allows them to avail extra benefits that are not covered in the policy.

#2- More Economical And Budget-Friendly

As covered in the previous point, riders avoid taking another insurance policy. The sole benefit of this situation is that the cost is reduced. Policyowners can add other coverages at a lower price without purchasing another policy as a whole.

Plus, it also leads to savings that further act budget-friendly to the person insured. So, if a person takes such coverages, it is a win-win situation as risk is reduced and budget is not hampered.

#3- Scope For Personalization

With insurance riders, individuals can also customize them. It allows tailoring as per the needs of the policyholder. Also, they can manipulate the structure according to their choices and add to their existing policy.

Frequently Asked Questions (FAQs)

1. Are life insurance riders worth it?

Riders act as lifeguards or helmets to an individual’s life. If a person takes them, protection from unavoidable risks is possible. However, the major advantage of the rider is during the retirement age. In other words, they actually help policyholders pay their bills in case of a critical illness rider.

2. Should we take riders with term insurance?

As the name suggests, term insurance secures only for a limited time. Once the policy expires, the insurance coverage is of no use. But, if we add riders with this policy, it covers the person with minimal premiums and provides extra protection.

3. What is a disability rider on term insurance?

It refers to coverage where the policyholder can claim expenses if an accident leads to permanent or partial disability. However, it is limited to a specific time from the accident date.

4. Which life insurance rider typically appears on a juvenile?

Juvenile technically refers to young children, and in most cases, policyholders can take child-term rider insurance. It is applicable from the age of two months to 26 or more.

This article has been a guide to Insurance Rider and its meaning. Here, we explain it in detail its types, examples, and benefits. You may also find some useful articles here –

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