Insurance Riders: What Is It & Do I Need One?

Imagine: you've just finished thoroughly comparing insurance products and have found the best one that suits your needs. Suddenly, when you scroll down, you realise that there's something called 'riders' to choose from.

"What are they and what do they do?", you may ask.

So, what are Insurance Riders?

Insurance riders are optional add-ons that can be bought for an insurance policy. A rider offers extra benefits or protection to enhance the protection of the original plan. Hence, when you compare insurance plans across insurers, it’s important to compare their riders as well.

Of course, they're not for free. The cost is added on to your total premium.

The riders you’re most likely to come across in Singapore are health insurance riders and life insurance riders. So let's break this down a little more.

Health Insurance Riders

Since health insurance is a pretty broad term, we will be discussing using Integrated Shield Plans (IP) for the purposes of this article. IPs are hospitalisation insurance plans that work with MediShield Life, the basic government health insurance scheme that covers Singapore citizens and PRs. They cover most of your medical costs if you get hospitalised, such as your hospital bills as well as related outpatient costs within a specified time frame. Yes, most, because IPs in Singapore are not allowed to cover 100% of your costs.

Before you can make a claim, you have to pay something called a “deductible” in a lump sum. That’s not all. A portion of the bill, called the “co-insurance” or “co-payment” portion, also needs to be paid by you. This makes sure that people don’t get hospitalised for fun or ask to be checked into luxury hospital suites.

IP riders are typically focused on reducing the deductible and the co-insurance/co-payment portion of your hospital bill to keep your out-of-pocket costs as low as possible.

There are also riders that offer extra benefits, such as hospital cash benefits, medical coverage and other perks like ambulance rides.

With riders, the insurer can pay up to 95% of your deductible and reduce your co-insurance to as little as 5%!

Ok, here's an easier example:

Let’s say your Integrated Shield plan has a deductible of $3,500, and a co-insurance portion of 10%. You decide to buy the most comprehensive rider the insurer is offering, which will have the insurer paying 95% of your deductible and reducing your co-insurance portion to 5%.

You then get a hospital bill of $100,000.

Without the rider, you have to pay: $3,500 deductible + $9,650 co-insurance [$100,000 – $3,500 x 10%] = $13,150 must be paid out-of-pocket, or with Medisave.

With the rider, you have to pay: $175 deductible + $4,825 co-insurance [($100,000-$3,500) x 5%]= $4,700 — almost $9,000 less!

Life Insurance Riders

Life Insurance is meant to give your family financial support if you pass away or are no longer able to work. The policy has a sum assured, which is an amount that will be paid out if you die, usually in a lump sum. Some plans will also offer protection if you suffer from total and permanent disability and/or terminal illness.

The most basic form of life insurance is term life insurance which simply offers life insurance protection for a defined term.

There is another type of life insurance, whole life insurance which is meant to cover you for life or until you reach a certain age like 99 or 100. This insurance also accumulates cash value over the years.

Whether term or whole, life insurance tends to come with a wide variety of riders. It's not rare to see five to ten riders available for a single plan! And unlike health insurance, where the riders are simply focused on reducing your out-of-pocket costs, life insurance riders come in with different purposes.

Here's the top three most common types of life insurance riders: Total and permanent disability riders, critical illness riders, and premium waiver riders.

Total & Permanent Disability Riders (TPD)

Life insurance riders commonly extend the coverage of your basic plan. Meaning, you can get a payout in more scenarios than the stipulated ones in your basic plan.

For example, many life insurance plans only pay out in the event of death or a terminal illness diagnosis. The insurer usually offers an optional rider so you also get a payout if you get a total and permanent disability (TPD).

If you buy the TPD rider, you have the assurance that you will receive your sum assured if you end up with TPD. This money can be used to support you and your family.

Before opting for a TPD rider, though, do compare against other insurance plans. Some life insurance policies already cover TPD from the get-go without requiring a rider, which may be more cost-effective!

Critical Illness Riders

Critical illness riders work similarly to TPD riders. They offer you additional coverage by extending your life insurance payout to when you get a critical illness diagnosis.

If you get one, you will receive a lump sum payout if you get diagnosed with a critical illness that is covered by the plan — conditions like heart attack or terminal cancer are usually covered.

Getting a life insurance policy with a critical illness rider can be a good idea if you want to cover all the bases. However, some life insurance policies might become void once you get a critical illness payout. That means you won’t be eligible for a life insurance payout after getting your critical illness payout. This varies from policy to policy, so check the fine print.

To avoid this issue, you may want to consider buying separate critical illness or cancer insurance plan.

Premium Waiver Riders

These riders excuse you from paying premiums in certain situations, such as if you are diagnosed with a critical illness.

Your plan will continue to run after, but you will no longer have to pay premiums thanks to the premium waiver rider.

You can also buy 'payer premium waiver riders' if you are paying for someone else’s life insurance policy. That way, their premiums will be waived if something happens to you.

Other common riders include personal accident coverage, disability benefits, hospitalisation cash benefits and so on. These all vary greatly depending on the insurer.

So... Which are worth buying?

Personally, if I had to pick one? IP rider would be my top pick. The differences in out-of-pocket medical costs with and without riders can be pretty wide, so it’s a good idea to pay little more for a lower deductible and co-insurance.

If your plan doesn't already offer a specific cover, especially for life insurance, it might a good idea to either get some through a rider, or simply pick a basic life insurance plan that offers it without having to add it on as a rider.

Make sure you read your plan carefully, as these riders may not be that straightforward — in particular, check whether the payouts will be taken from your basic plan’s sum assured or are separate.

Finally, remember that insurance premiums rise with age and the same goes for your rider premiums, so check how your total premiums will change over time and make sure you don’t overcommit!