Health policy riders

What a rider is

A rider (also called an endorsement or amendment) is a form attached to a health or disability policy that changes the base contract. A rider can add a benefit, increase a benefit, restrict coverage, or clarify a term. A rider has no life of its own: it exists only as part of the policy it modifies, and it ends when that policy ends. Riders that add benefits usually cost extra premium. Riders that restrict coverage usually let the insurer accept a risk it would otherwise decline.

Under the entire contract concept, the policy, including its endorsements, and the papers attached to it, such as the application and any riders, together make up the whole agreement. A change is valid only when an executive officer of the insurer approves it and it is endorsed on or attached to the policy. A producer cannot change a policy or waive a provision by promising something the riders do not say.

In New York, riders are part of the regulated rate structure. No accident and health policy may be delivered until the rate manual showing the rates, rules and risk classifications used with the policy and with riders or endorsements on it has been filed with the superintendent.

Riders that add or increase benefits

These are the riders an exam expects you to recognize, mostly on individual disability income policies:

• Waiver of premium: after the insured has been totally disabled for a stated period (commonly 90 days, or six months on some policies), the insurer waives premiums for as long as the disability lasts. Many disability policies build it in; others sell it as a rider. Premiums paid during the waiting period are often refunded.
• Guaranteed insurability (also called future increase option or future purchase option): lets the insured buy more coverage on set option dates or life events without evidence of insurability. On a disability policy the insured must still show enough income to justify the higher benefit.
• Cost of living adjustment (COLA): increases the monthly benefit during a claim, usually tied to the Consumer Price Index and often capped, so inflation does not erode a long disability benefit.
• Social insurance supplement (social insurance substitute): pays an extra benefit when Social Security disability or other social insurance pays less than expected or nothing at all, and reduces when social insurance pays.
• Additional monthly benefit: pays an extra amount for a short period, typically the first year, to bridge the wait before Social Security disability benefits begin.
• Return of premium: refunds part of the premiums paid, less claims, if the insured stays claim-free over a stated period. It is expensive.
• Accidental death and dismemberment: pays the principal sum for accidental death and a capital sum (all or part of the principal sum) for loss of limbs or sight.

Riders that restrict coverage

An impairment rider (also called an exclusion rider) permanently excludes a named condition, such as a back problem, so the insurer can issue the policy at standard rates instead of declining it. The alternative is a rated policy: full coverage, higher premium. Know the difference: an impairment rider narrows coverage, a rating raises price.

Impairment riders survive mainly on disability income and limited-benefit coverage. Comprehensive individual medical coverage today must be issued without health-based exclusions, so riders cannot be used to carve out conditions there.

Riders on life policies

Disability-type riders attached to a life insurance or annuity contract, such as accidental death and dismemberment, waiver of premium that keeps the policy from lapsing, or a special benefit on total and permanent disability, are treated as part of the life contract. New York excludes them from its individual accident and health policy provisions law.

Exam tip: if a question asks which rider lets the insured buy more coverage without proving insurability, the answer is guaranteed insurability. If it asks which rider removes a specific condition, the answer is the impairment rider.