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When buying insurance, whether this includes renters, landlord, auto, homeowners, life, or some other, you might find a need to amend or make some adjustment to your policy.  In that case, you will need to consider requesting your agent make an insurance endorsement or rider which acts as an amendment or addition to an existing insurance contract and changes the terms and/or scope of the original policy.

You might hear endorsements referred to as insurance riders, as the two terms appear interchangeable.  An insurance endorsement can add, delete, exclude or otherwise alter the coverage you carry for that policy.  

Further, these insurance endorsements or riders can occur at any point in an insurance policy’s term.  This includes at the time of purchase, mid-term or at policy renewal. These insurance endorsements represent a legally binding amendment to the insurance contract and will show on the insurance declaration page.

This post explores insurance endorsements, their purpose, types, length, where you find them, and how they can be used to adjust your policy.

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What is an Insurance Rider or Endorsement?

An insurance rider or endorsement represents a policy add-on, modification, or adjustment which can provide policyholders additional benefits or better coverage suited to their needs.  When you purchase insurance, the availability of insurance riders varies by company and policy, as do the rules for how they work.

Further, the costs represented by each insurance rider can differ due to a number of factors such as age, health, coverage need and type of policy.  These adjustments provide an additional benefit above what comes with a basic policy in exchange for an added fee to the insurer.

Insurance riders do not represent standalone insurance products and must attach to a standard insurance policy offered through your insurer.  Insurance riders tailor your policy to the precise needs of your circumstances.

What Types of Insurance Riders Exist?

Two types of insurance endorsements exist and should be understood by you.

  • The insurance endorsement represents the new policy documents you receive after making a change to your policy

Whenever you decide to change your insurance policy, whether for additional coverage needs, a change in circumstances, or any other reason, your insurance endorsement results in a new document.  This new insurance endorsement forms part of your insurance agreement and you should always keep a copy of this for your own records.

In some circumstances, the insurance endorsement may supersede previous versions of your insurance policy, completely replacing it in amount, scope, or intent.  This can occur for a change of address, coverage modification, or other reason. In this case, the insurance endorsement replaces the original insurance policy.

Another such example comes from joint coverage (covering multiple insured parties) now no longer covering the original parties.  Imagine a circumstance where financial infidelity has occurred and the couple opts for a divorce.

Under the original insurance policy, both married persons held coverage over shared assets like a home, autos, and more.  After the dissolution of the marriage, one spouse has signed over ownership of assets carrying insurance coverage to the other, relinquishing a claim to the property.

In so doing, the spouse now in possession of the covered assets in question may request an endorsement to her home and auto insurance policies, thereby removing the name of the ex-spouse.  The policy documents she will receive with the corrections will constitute an insurance endorsement.

This insurance endorsement replaces the previously issued version of the insurance policy and the endorsement represents the revised insurance contract.

  • The insurance endorsement may refer to a clause or rider

When changing coverage held under an insurance policy, the new insurance endorsement supersedes the original insurance contract.  This occurs on account of name changes, adding additional conditions to the contract or additional coverage through an insurance rider, or any other number of reasons for amending the insurance contract.

When only the new terms change in the original policy contract, meaning no language occurs otherwise, this change represents an add-on to the policy.  Adding additional coverage to an existing constitutes such a change.

For example, when I bought my wife her engagement ring, I needed to increase the jewelry coverage on my homeowner’s insurance policy.  To do so, I requested an endorsement to add a scheduled item: my wife’s engagement ring.

The insurance endorsement described her ring I had certified through a Gemological Institute of America qualified appraiser and added this to my coverage.  The added endorsement did not replace my original policy and only added coverage in the form of an endorsement rider. 

As another example, if you have entrepreneurial interests, you may come to learn about business startup costs.  You want to build your person as a brand but also want to carry the appropriate amount of insurance coverage.

If you choose to start a home business, you might consider added extra coverage through your existing homeowner’s insurance policy to cover the business.  This change would fall under the insurance endorsement classification and simply add additional coverage without having to request an entirely new policy.

Insurance Policy Rider Examples

  • Homeowner’s Insurance Riders

    • Scheduled Personal Property Coverage – Provides additional coverage for things you own which are worth more than the per-item limit of your homeowner’s (or condo or landlord or renters insurance) insurance policy.  Can also provide protection for assets that may not be covered by your standard policy.
  • Auto Insurance Riders

    • First Accident Forgiveness – Common among major insurers like Allstate, Liberty Mutual and others, this guarantees that your premiums will not go up in the event of your first, at-fault (or partly-at-fault) accident
    • Rental Car Insurance – The allows for coverage of use of a rental car should you have an inability to operate your car (e.g., accident, repairs, etc.) and allows for per day and maximum coverage caps in most cases
  • Life Insurance Riders

    • Waiver of Premium Rider – In the unfortunate event you become completely disabled, you will no longer have to pay the premium on your life insurance.  Learn more about whether the proceeds from life insurance are taxable.
    • Disability Income Rider – Related to the waiver of premium rider, this allows you to collect a regular income from your life insurance company if you become totally disabled and unable to work.  The policy specifies the amount of income received and whether the company pays for a specified time or for length of the disability.

How Much Does an Insurance Rider Cost?

No two insurance riders are identical, especially when comparing across multiple companies.  Because the terms and fees associated insurance riders remain customized to the insured’s needs, comparing the costs across competing insurance quotes prove difficult.

That said, insurers can provide directional comparability by quoting premiums on a cost per $1,000 of coverage.  For example, on renters insurance, you might ask for a breakout for each standard coverage item on a policy.  

On your Loss of Use of Insured Location limit, ask for a detailed breakout on how much each additional $1,000 of coverage costs in policy premium.  Do the same for Personal Property, Personal Liability and Medical Payments to Others. Once you have these benchmarks, you can have an idea of how to compare across policies for an apples-to-apples view.

However, also realize this complexity and opaqueness can serve to the benefit of insurers.  The non-comparability or lack of transparency in policy terms can allow the insurer to build additional profits into their offerings.

Comparability can also have even more difficulty with the additional clauses an insurer adds to a policy.  Before adding any insurance riders to your existing policy, review them in some detail as they can severely limit the benefits of a proposed rider if they do not have an effective benefit for the cost incurred.

Also, inflation in prices over time could affect insurers differently with how they price insurance riders on their policies.

Finally, one other element in pricing insurance riders should serve more as a caution to you.  Insurance riders can provide duplicate coverage, therefore you should exercise awareness and understanding over each rider and whether you need it.  

Just as important is avoiding riders for long-tail events which are highly unlikely to happen.  Consequently, you should make a reasonable estimation of the actual need for an insurance rider before paying additional money for it.

How Long Does an Insurance Rider Remain Valid?

An insurance rider alters the underlying policy, becoming part of your insurance policy.  As a result, the insurance rider remains in force until the insurance policy expires.

Further, at renewal, the insurance rider may remain on your policy under the same terms and conditions as the rest of your policy.  As an exception to this event, the endorsement may specify terms (including duration) for how long the endorsement remains valid. See the limited term insurance rider example below for more context.

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Limited Term Insurance Rider Example

Language for a rider can vary with respect to coverage modification and term.  An example you may encounter of the latter could read as the following:

“It is understood and agreed that liability will be extended to an additional location at insured address from May 1, 20XX to May 31, 20XX.”

This language specifies the added term insurance rider for coverage at the insured property address on the existing policy.  It contains a specified date range (May 1, 20XX to May 31, 20XX) for the endorsement or agreement to the policy amendment rider.

If the underlying policy expires in July 20XX of the same year, the endorsement will not necessarily be valid for the full term of the contract but rather respects the specified term on the policy.

A commonly used example of this limited term insurance rider comes from a home under renovation, such as a condo or primary residence.  Because the underlying policy would not normally cover this type of risk for the full term, you would need to add this limited term insurance rider by contacting your insurance company with your request.

Depending on the risk profile of the request, the insurance company may grant you a limited term insurance rider through an endorsement on your policy stating specific terms and coverage.  As a converse reaction, they may also choose to limit coverages during the term as well.

About the Site Author and Blog

In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time.  My job routinely required extended work hours, complex assignments, and tight deadlines.  Seeking to maintain my momentum, I wanted to chase something ambitious.

I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity.  I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.

Disclaimer

I have not been compensated by any of the companies listed in this post at the time of this writing.  Any recommendations made by me are my own.  Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.

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