Many policyholders don’t use or even understand insurance floaters and riders. Here’s what they do and how they can add an extra layer of protection.
Understanding insurance can be a confusing challenge for many people. Absolute certainty on what’s covered, what isn’t, and how factors like age, marital status, and location affect our premiums isn’t common. In a sector with often dense terminology, floaters and riders are among the easier concepts to explain.
Simply put, riders and floaters are optional contingencies which provide extra coverage for certain items or for individuals under specific circumstances. The two options can be extremely similar in practice—the terms can even be interchangeable in some instances—but there is enough of a significant difference to warrant two separate explanations.
How floater coverage works
You’d be right if the name conjures up some relationship to insurance involving water. The name derives from coverage originally provided for items which were easily transportable, typically over water. Today, the added option of a floater applies to any item which can be moved around easily. This extra coverage is usually applied to things like jewelry or electronics.
Floater items tend to be those with marked mobility—we wear jewelry out in the world and carry our electronic devices everywhere we go, for example. These items are typically of high value and/or on the smaller or more-fragile side, making them easier to damage or lose.
Taking a valuable necklace as a further example, standard homeowners insurance will only cover the item for a certain amount because its vulnerability to loss makes it a greater liability. Homeowners coverage only protects jewelry under one of 16 potential perils, and then usually only up to a maximum of $2,000. In contrast, floater coverage can go much higher and protects against losses of any type.
Insuring valuable items for their total worth requires a separate floater for each individual item. Any items with a quantifiable replacement value typically also require certification from an appraiser; a service that helps both verify the item’s worth and set the terms for premiums.
Of course, floaters can also be taken out on items of purely sentimental value to protect them from damage, loss or theft—“irreplaceable” is as insurance-worthy a concept as “priceless.” Cash value is only an issue where expensive items are concerned and when they are, it’s wise to have the floater reviewed occasionally to ensure the current level of coverage value is accurate.
Breaking down rider coverage
The terms “floater” and “rider” may be interchangeable when it comes to insuring the property, but it’s a different story when people are involved. A rider on a life insurance policy, for example, adds to or amends the agreement to benefit either the policy holder or their beneficiaries.
In some instances, they can be added to the coverage at any time and take several forms. Life insurance riders help cover against outcomes like disability; in the event of which, the policy holder will receive a monthly income until they recover or, in worse cases, until they retire.
A more common variation on this is the Waiver of Premium Rider. This waives the cost of paying premiums for as long as the disability or serious illness last or up to the ages of 60 or 65. The powers of the coverage remain unchanged during this period despite no premiums being paid—although some age and health requirements may have to be met before a waiver can be put in place.
Long-term care and death riders
When a long-term care rider is added to a life insurance policy, it allows funds from the policy’s original death benefit to be accessed while still alive in order to pay medical expenses. Since the death benefit is being drawn from, a long-term care rider will reduce the final amount payable to any surviving beneficiaries.
An accelerated death benefit rider is like a long-term care rider in that it pays out while the policy holder is still living, with long-term care being one of the covered scenarios. There are typically no stipulations on how the freed funds can be used, but they are usually deployed to pay for medical bills arising from a terminal illness or nursing home care. As with the long-term care option, accelerated death riders will pay the deceased’s beneficiaries only what remains, if anything, of the original death benefit.
Some riders can increase the amount payable on death, such as an accidental death benefit rider which can also payout for the loss of a limb.
How riders can alter or guarantee insurance coverage
Term conversion riders allow for one policy to evolve into another when this would not usually be allowed. Term life insurance is only for a specified period which may be between 10 and 30 years (after which, coverage ends). This can be a bad situation if a policy holder has developed a condition during that period which still needs care, but it is no longer covered.
In many instances, insurers may choose to refuse that individual dependent based on the severity of the condition. The addition of a term conversion rider allows term life to change into permanent life insurance and allows coverage to continue in many instances, without even requiring a medical exam.
Insurance exists to protect us against the worst and a guaranteed insurability rider is a good example of this. These riders offer protection in the event of a health decline after the policy is taken out and therefore could be the most sensible of all riders—very few of us will go our whole lives without some significant decline in health.
Guaranteed insurability riders rarely, if ever, require any additional underwriting requirements and provide policy holders with the significant benefit of extra life insurance on top of their existing coverage.
How much do floaters and riders cost?
There’s no general cost figure since each policyholder’s possessions, personal health, and preferences will dictate their premiums. We can say that purchasing a rider or floater as an addition to your existing plan is often much cheaper than buying a separate policy altogether for that item/outcome. Be aware that some insurers may also charge for removing a rider or floater after it has been set in place.
Some floaters and riders may come free of charge, but they usually cost extra. But they also provide further protection and peace of mind. One last tip: be sure your existing policy doesn’t already offer enough coverage to suit your needs. This will save riders or floaters from becoming an unnecessary expense.
NICRIS Insurance is always here to clear up any confusion about your coverage. Get in touch with us for some no-obligation advice about your personal situation.
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