Insurance Riders: When to Say Yes to Extra Protection

When you really want to be sure that your metaphorical pants won't fall down, sometimes you take the belt and suspenders approach: The usual safety feature, plus a backup.

In the realm of insurance, that backup is called a rider. It goes beyond your standard policy and protects against those issues that concern you enough that you're willing to shell out extra money to protect yourself against then.

In most cases, people are better off paying for the things covered by riders out of pocket, says Eli Lehrer, vice president of The Heartland Institute, a conservative, free-market think tank.

"Typically, riders are expensive, and the insurance companies are the big winners," concurs Pete D'Arruda, president of Capital Financial Advisory Group.

That said, sometimes stuff happens, and you can't put a price tag on peace of mind. (Except when you can -- it's called your insurance premium.) Here's a look at a few common riders that might be worthwhile for you, as well as some that may not be worth your money.

Life Insurance

Guaranteed insurability: A guaranteed insurability rider gives you the right to buy additional life insurance at certain future dates, without having to provide any medical updates. For example, the rider might permit you to purchase additional insurance at ages 30, 35, and 40. However, with many insurance companies, this rider only assures you the right to buy additional coverage until you reach a certain age, usually 40.

You'll pay roughly an additional 10% to 15% of your premium for this rider, says Brian Ashe, treasurer of the Life and Health Insurance Foundation for Education. The premium for any additional insurance purchased under the rider would be based on your age at the time you buy it.

"This rider can be particularly useful if you are in a high-risk group for any disease that might make you you uninsurable," says Michael DeGroat, a financial adviser with Ameriprise Financial Services.

Long-term care: Long-term care insurance can be pricey, so some people find a long-term care rider easier on the budget. The rider allows you to use your death benefit to pay for long-term care expenses you may incur. Some riders allow the long-term care benefit to exceed your policy's death benefit by two to three times, or extend the number of months over which you can receive long-term care benefit payments such that the total payments available are greater than the death benefit, says DeGroat.

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Know however, that long-term care payments will reduce the death benefit on a dollar-for-dollar basis.

There are a number of variations on this theme. The Hartford has a LifeAccess rider on permanent life insurance that allows you to draw down on the life insurance benefit to pay for a chronic illness. The plus of this product, says spokesperson Robert DeMallie, is flexibility: "You are not limited on what you can spend the money on. You could use the money to pay your daughter for taking care of you, take a trip, or make home improvements."

The Hartford also offers a Longevity Access rider that allows people who live to 90 to draw down on the money that would otherwise be paid to their beneficiaries.

"With so many people living to 90 and beyond, being able to have this income is a game changer," says Robert Pokorski, chief medical strategist for The Hartford. With the Longevity Access rider you can withdraw up to 1% each month of the total that would be paid at the policyholder's death. Both of these riders will cost about 5% to 15% of the primary policy's premium.

Waiver of premium: With this rider, the insurance company pays your policy's premiums should you ever become totally disabled.

"The definition of total and permanent disability varies from one insurance company to the next, so it's important to understand how your insurer defines this term," cautions DeGroat. And, you may have to wait three to six months after the injury or illness before the insurer will certify that your disability is permanent, during which time you must continue to pay your own premiums. Once the waiting period expires, if you are still disabled, you will be considered permanently disabled. Premiums paid during the waiting period will be refunded and the insurance company will begin making your premium payments.

The cost of this rider varies mainly based on your age when you buy it. The older the individual, the more expensive it can become, adding to as much as 15% to 20% to the cost of the premium.

Homeowners Insurance

Personal property: For expensive items like jewelry and artwork, you'll want a personal property rider. With a standard homeowners policy, where limits for jewelry can be $1,500, you may need much more in the case of theft or damage. You'll need to provide an appraisal of the items to show proof of value. The cost of the rider will depend on the amount insured, says Amy Danise, senior managing editor at

Sewage backup: Every other day, it seems like there's news of flooding somewhere in America. While flood insurance is typically covered under a separate policy, sewage backup is not. Such a rider would cover damage from a sewer backup or a sump pump that couldn't keep up with the water flow into a basement. It would also cover backups due to tree roots blocking a sewer line. The cost for such coverage: Just $40 to $50 a year, according Tully Lehman, communications specialist with the Insurance Information Network of California.

Building code upgrades: If your home is damaged or destroyed, it must be rebuilt to current codes. "You might have to pay more out-of-pocket if it's illegal to rebuild your house to the old code," says Lehrer. The added cost for that likely isn't covered under your policy, so you might want to consider "ordinance" or "law" riders. This will provide up to a specified amount of extra money to account for building code upgrades.

Replacement cost (contents): In the event of a loss, there's no depreciation taken into account for the personal property you must replace.

Guaranteed replacement cost
: With this coverage, the insurance company will replace your home with another of like kind and quality, even if the replacement cost is above the value listed on your policy. "Some carriers still put a limit of 20% or 25% above the listed value," says Robert Ryan, president of Ryan & Ryan Insurance Brokers.

A Freebie You'd Probably Rather Not Use

Some things in life -- and life insurance -- are premium free. The accelerated death benefit rider allows the policy owner to receive an advance on the death benefit if the insured has a terminal illness that is expected to result in death within 12 months. The proceeds may be used for any purpose. Though there is no additional premium for this rider, a fee is charged when it's exercised, says Raleigh Lang, a MassMutual adviser.

Riders You Don't Need

While there are some good policy items to add on, others you might politely pass on.

"Critical illness riders generally have lots of caveats and do not cover a full range of risks," points out Cora Klena, a spokesperson for USAA.

Another extra that some experts aren't too keen on is the business pursuits rider.

"I think it's a waste of money. The better way to protect a home business -- to protect both property and liability for business -- is to purchase a separate commercial insurance policy," says Dan Weedin of Toro Consulting. "The business pursuits rider is limited and may not cover what is needed because it might be too generic in nature or not tailored for unusual businesses. For instance, a consultant like me needs professional liability, and even a business pursuits rider will not protect me for that."

Lehrer is emphatic about return-of-premium riders on term insurance. "They are always bad deals," he says. If you -- the insured -- die within a certain time after purchasing the policy, the insurance company will pay an amount equal to the total premiums paid, in addition to the face amount of the policy. You'll pay extra to assume that you'll outlive the term of your policy and get all your money back. Would you be better shunning the rider and instead investing that money in another way? That's a question only you can answer. How worried are you about those pants?