Today, insurance has become a necessity for the primary earning member of the family. The benefits of buying a life insurance policy go beyond protecting the policyholder’s family in tough times. Insurance policies act as a financial cushion, can be a valuable saving and investment tool, provide mental peace and can help in effective tax planning. Among various life insurance policies that are currently available, term plans are the most famous, simple and cost-effective.
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years. If the policyholder dies within the specified term or during the active period of your policy, then the death benefit is paid to the nominee. However, if you outlive the “term” of your term insurance policy then the funds that you paid as premium are forfeited. Term plans alone may not be sufficient in certain cases. For instance, if the policyholder gets severely injured in an accident or is diagnosed with a life-threatening disease, a term plan may not help bear the major expenses of prolonged treatment. To prepare for such eventualities, individuals can consider buying add-on covers or riders.
A rider is an attachment, amendment, or endorsement made in an insurance policy that gives the policyholder supplementary coverage. Riders strengthen an insurance policy by providing multiple additional benefits, apart from the core offering of a death benefit.
Riders can typically be attached to any insurance plan be it a term plan, endowment plan, unit-linked plan (ULIP) or money back plan. The policyholder has the choice to select riders based on individual and family needs since they can enhance the life cover and secure the financial well-being of the family more comprehensively. Some of the more important riders are discussed below:
An accidental death benefit rider pays an additional sum assured to the dependents of the policyholder in case the policyholder passes away due to an accident. The basic sum assured is still paid, and an additional sum is paid over and above the basic sum assured. This additional sum is calculated as a percentage of the basic sum assured and may vary from company to company. It can also be capped in some cases. It is important to note that the benefits of this rider can be utilised only if the death is caused due to an accident. This insurance cover can be useful for people working in dangerous conditions or people who regularly expose themselves to physical risk.
In case the policyholder meets with an accident that causes a partial or permanent disability then this rider pays the disabled policyholder regularly for the next five to ten years following the accident-caused disability. This can be very helpful in assuring a regular source of income to the policyholder. It is important to note that the benefits of this rider can be utilised only if the disability has been caused by an accident.
The accelerated death benefit rider can be very helpful for the family in case the policyholder is suffering from a terminal illness. This rider pays a part of the sum assured in advance which can help in managing expenses towards the patient’s medical treatment. This rider specifies how much of the sum assured would be payable in advance. The accelerated death benefit rider is an extremely beneficial rider and comes at a relatively low cost.
Critical illness riders ease off the burden of expensive medical treatments by offering a lump sum amount to the policyholder in case he is diagnosed with a critical illness. Most major illnesses are a part of the critical illness cover. Once the critical illness has been detected and payment under the rider has been made, the policy may either continue or terminate as per the policy terms and conditions. In some cases, the policy coverage is reduced by the amount paid out to the policyholder.
The waiver of premium rider can be beneficial in case the policyholder is unable to pay the premiums due to some disability or diseases leading to the loss of a job. It waives off future premiums due towards the insurance policy while ensuring that the policy remains active. Typically, this rider forms a part of a regular term cover. This rider is akin to having all the premium payments insured until the expiry of the policy.
Income benefit rider is primarily for income generation after the policyholder’s death. If this rider is included in the policy, the policyholder’s family gets additional income per annum for ten years, along with the sum assured in the base policy.
By purchasing riders, policyholders can maximise the benefits of their life insurance policy to suit their specific circumstances and prepare for multiple eventualities. However, whenever you are buying a rider, ensure that you are fully apprised of the terms and conditions that come with the rider.
The author is the Co-Founder of Turtlemint, an Insurtech platform