Insurance Riders: When to Say Yes to Extra Protection
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?
Source: http://www.dailyfinance.com/2011/05/31/insurance-riders-when-to-say-yes-to-extra-protection/