Life insurance riders may seem complex, but knowing what they are and how they work can help you choose which are best for you, your family, and your wallet.
Riders are the add-on components of a life insurance policy that help maximize the policy benefits and coverage. They offer a potent add-on risk cover that provides additional event-based financial protection and can be used to customize your insurance plan based on specific needs. Here’s what you need to know about relevance of riders in maximizing the risk coverage in a life insurance policy.
- Riders, as the name suggests, are optional benefits that can be bought along with a base life insurance plan. Life insurance companies offer a range of such optional riders at an additional nominal premium to increase the risk cover under the policy or add new risk coverages.
- With additional benefits, a rider enhances the insurance protection and the family’s financial support, particularly in case of accidents, disability, and critical illnesses. Many riders provide benefit during survival of life insured and not merely additional death benefit.
- Typically, the rider premium is significantly cheaper than purchasing a standalone insurance product as the riders only offer risk cover without any savings component.
- The coverage period and the coverage amount of the riders cannot be more than the coverage period or the coverage amount of the base life insurance policy.
- Commonly, the rider benefit is payable either as a lump sum or a stream of income as per the policy contract. Multiple riders can be attached to a policy.
Riders You Can Choose From
Let us look at the top five riders, and the benefits offered to the life insured and their loved ones.
1. Waiver of Premium Cover
This rider offers a waiver on all future premiums of the policy in case of an eventuality such as dismemberment, disability, or critical illness due to an accident or disease, or any other cause. Apart from this, the policyholder’s family continues to receive the base policy benefits which may include bonuses, guaranteed income streams, or growth in fund value, based on the type of policy purchased.
How this rider works:
A 35-year-old male purchases a life insurance savings plan in order to plan for his family’s financial security and create a corpus for his child’s higher education. For this, he chooses a base plan with a policy term of 25 years, and a premium payment term of 12 years, at an annual premium of INR 60,000.
However, worrying for the child’s future in case he suffers from an eventuality, he opts for a waiver of premium rider, which will ensure that in case he is diagnosed with a critical illness or is disabled due to any reason, the policy continues without requiring any future premium payment and ensures all future benefits remain intact.
Here in case, if the insured meets an accident and loses both arms after paying six premiums, all the future premiums will be waived off till the end of the premium payment term of base plan.
2. Disability Cover
A disability rider is a beneficial cover in case the insured suffers from a total, partial, or permanent disability due to an accident, or instances of stroke, or any other cause. Such an incident can significantly impact the future income generation capability of the breadwinner. This rider ensures a lump sum benefit or an income benefit payable to the insured and their family in case of disability.
3. Accidental Death And Dismemberment Cover
Accidents can disrupt future goals and dip into the family’s finances. This rider safeguards the family’s financial future in case of accidental death or accidental dismemberment. The additional protection benefits are applicable in case the life insured meets an accident, leading to death or dismemberment.
How this rider works:
A 35-year-old male purchases an insurance plan for securing his financial future. For this, he chooses a variant with a policy term of 17 years, and a premium payment term of 12 years, at an annual premium of INR 60,000. Further, in order to ensure comprehensive protection, he purchases an accidental death and dismemberment rider with a sum assured of INR 5,00,000 with a policy term of 17 years, and a premium payment term of 12 years.
In this scenario, if the insured dies in a road accident after paying six premiums, his family receives the guaranteed death benefit and accrued bonuses from the base plan. Additionally, the family also receives the rider sum assured of INR 5,00,000.
4. Term Cover
Term rider when attached to a life insurance policy, offers supplementary additional life coverage making it an essential component to strengthening the overall risk cover offered by the policy. As an add-on to the permanent life insurance policy, the customer can choose to enhance the risk coverage for a specific period as per need or throughout the coverage term of the base policy.
5. Critical Illness and Disability Cover
Under this rider, the policyholder is provided with comprehensive financial protection against a range of critical illnesses post a ‘waiting period’. In case of diagnosis of the covered critical illnesses (Like cancer, heart attack of specific severity), the insurance company will pay a fixed benefit to the life insured and their family. The list of critical illnesses covered, and the minimum survival period are mentioned under the rider’s terms and conditions. Buying this rider will always be a sound financial planning call, as it will lessen the financial risk of battling many serious diseases.
How this rider works:
For instance, an individual purchases a life insurance policy with a five-year premium payment term and 10-year policy term. In order to ensure additional protection, he also buys a critical Illness and disability rider (a INR 10 lakh rider sum assured with five-year rider premium payment term) at a nominal incremental cost. Considering all premiums are paid on time, he is entitled of any of the following benefits:
Scenario I – life insured is diagnosed with one of the listed major illness in the 3rd year of the policy (while still paying the policy premium), then the rider sum assured of INR 10 lakh is paid to him on confirmed diagnosis of illness (after the survival period of 14 days) and the rider terminates. Also, the base policy benefit will still stand and will not be impacted by the rider payout.
Scenario II – Insured is diagnosed with one of the listed minor illness in the 8th year of the policy (while the premium payment term has ended but the policy term continues), then a rider sum assured of INR 2.5 lakh is paid to the insured on confirmed diagnosis of illness (after the survival period of 14 days) and the rider benefits continues. Also, the base policy benefit will still stand and will not be impacted by the rider payout.
Scenario III – Insured dies while the base policy and the rider is in-force, then only the base policy death benefit is paid to the beneficiary immediately upon approval of claim, and the policy contract terminates. In this case, no rider benefit is paid on death.
Things to Keep in Mind While Selecting Riders
With a variety of life insurance plans available, it is critical to choose the right one basis a broad spectrum of financial needs. Similarly, a thorough assessment and understanding should be established before choosing the rider coverage. A few things to keep in mind before choosing the rider coverages to opt for:
- Assess the additional risk coverage that is most suitable for you. For example, if your job requires a lot of road travel, it is advisable to opt for accidental death and disability coverage.
- Read the terms and conditions carefully to understand the benefits and exclusions of the riders being considered.
- Preferably choose a rider coverage period in line with the base life insurance plan coverage period.
- Ensure the eligibility criteria are met before opting for a rider.
- Talking to a trusted insurance agent/financial advisor before making the final purchase decision can help clear doubts that one may have about the benefits of the rider.
Value That Riders Add
A life insurance plan is not a one-size-fits-all. Hence, before comparing different plans, one should consider specific needs like the sum assured, affordability, premium payment tenure and policy coverage period. Once a suitable base plan is selected, appropriate riders to cover specific risks may be added. Here, one needs to make sure to understand and evaluate emergent needs before making the final purchase.
Also, one should read the terms and conditions carefully to understand the benefits, exclusions and eligibility criteria of the riders being considered. Talking to a trusted insurance agent advisor before making the final purchase decision can help clear doubts that one may have about the benefits of the rider.
Buying a rider should be a sound decision. In the current times, it is a smart move to purchase riders to enhance risk coverage over and above the base insurance policy cover at a relatively lower price and secure the financial future of your loved ones.
Do not duplicate the coverage between a rider and an existing policy. For this, do read the terms and conditions carefully, to understand all the benefits and eligibility criteria available under the riders. Talking to an insurance agent, before making the final purchase, can help clear all doubts that you may have about the benefits of the rider.
Once you have selected a suitable base plan, select an appropriate rider for your specific needs and add value to your policy. Make sure to understand and evaluate your needs before making the final purchase.