Insurance rider

An insurance rider is an adjustment to a basic insurance policy. A rider usually provides an additional benefit over what is described in the basic policy, in exchange for a fee payable to the insurer. A rider is not a standalone insurance product; it must be attached to a standard insurance policy. A rider is useful for tailoring an insurance policy to the precise needs of the insured entity.

Examples of insurance riders are:

  • Life insurance - an accelerated death benefit, so that a payout occurs when the policy holder is diagnosed with a terminal illness.
  • Directors and officers insurance - a "tail" is added to a policy, so that the directors and officers receive coverage for several years following the normal termination of the policy.
  • Property insurance - additional coverage is provided for flooding, earthquakes, and fire damage, which may not be addressed by the basic policy.

The terms and fees associated with riders are customized to the specific needs of the insured entity, so it can be difficult to compare competing insurance offers. Insurers can use the non-comparability of policy terms to build additional profits into their offerings.

Comparability can be made even more difficult by additional clauses that an insurer wants to add to a policy that relate to any rider being quoted. These clauses must be reviewed in some detail, since they can severely limit the benefits of a proposed rider.

Another concern with riders is that they can provide duplicate coverage, so be sure to examine the terms of the basic policy to see if the rider is really needed. A final issue to be aware of is that many riders cover events that are very unlikely to happen. Consequently, make a reasonable estimation of the actual need for a rider before paying additional cash for it.

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Business Insurance Fundamentals