Explained: What Are Riders in Term Insurance?
Term insurance is a contract you enter into with an insurance firm over a specified period of time. In this, you are required to pay the insurer a fixed sum, called the premium, at regular intervals of time. In case of your demise during this tenure, the insurance company is liable to pay a fixed sum to your family (or whoever you have nominated) for their sustenance. However, in many cases, like critical illnesses, or accidental disabilities, a term insurance plan may not be able to cover all your needs.
Riders are additional benefits added to the main term insurance policy, so that you can get several kinds of protection under a single plan. The purpose of riders is to strengthen an insurance policy by providing benefits in addition to the death benefit provided by the basic term plan. There is no limit to the number of riders you can buy.
Riders offered with a Term Plan
Riders can be bought either at the same time as the original plan or can be added on later, based on the rules set by the insurer. The risk cover provided by the riders comes to an end at the same time as your term plan. You pay a higher monthly premium, depending upon the riders you choose to add.
The rules for purchasing riders are outlined by the IRDA as follows:
- The sum assured on a single rider cannot exceed that on the main policy.
- The overall premiums you pay on critical illness riders must not exceed the premium on your basic term cover.
- The same tax breaks that are applicable on your term policy are applicable on the premiums you pay on your riders.
- Section 80C benefits are applicable to non-health riders, health riders get section 80D benefits and the maturity payout is exempt under section 10(10D).
Here are the different kinds of riders you can choose to add to your term insurance policy:
- Accidental Death Rider
This rider assures that your family will receive a higher payout in the event of your death due to an accident- road, plane, industrial accident, etc. This will also ensure that your family will not lack money, in case the base policy amount is not sufficient to meet their needs. Most insurers allow you to choose the amount of extra cover you want to buy under this rider, as long as it does not exceed 100% of your basic policy. The payout is made, if death occurs within a specific number of days after the accident (120-180 days), and not after that.
2. Accidental Disability Rider
This rider compensates you for your inability to work or earn an income in the case of an accident resulting in a disability. Most insurers make a monthly payment for a specific tenure, like 10 or 15 years. This makes up for the loss of your income due to the disability. However, a lump-sum payout is also a viable option.
In case of total or permanent disability, i.e. when the policyholder is unable to work and earn, the entire sum assured by the rider is paid to him. In case of partial disability, when the policyholder is disabled but can work, the insured gets only a partial sum. The percentage is highly dependent on the severity of the damage as declared by the doctor who has been treating him/her.
The claim is payable for disabilities that occur within 180 days of the accident. Exceptions may be made in severe cases. Not all disabilities are covered by insurers, they have a list of disabilities that they will cover, while the rest are excluded.
3. Critical Illness Rider
This rider provides you and your family an additional cover for the treatment of a critical illness, like cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, paralytic stroke, etc. A critical illness rider financially allows you to get the best medical treatment without worrying about costs. A lump sum amount is paid as a part of your base policy, upon the diagnosis. The specific illnesses that will be covered are listed by the insurer.
This is one of the most expensive riders you can choose to add on to your pure term cover. But it prevents an unforeseen illness from negatively affecting your finances.
4. Terminal Illness Rider/ Accelerated Death Benefit
This rider ensures that if the policyholder is suffering from an incurable illness and likely to die in a few months, then the insurer pays the entire sum assured to the insured/nominee without waiting. This gives you the freedom to put affairs in order, travel, pay for end-of-life care, or anything else you wish to do. The imminent death has to be confirmed by a registered doctor.
Terminal illness riders can be used in any way the insured wants to. The process of claims settlement is hassle-free once all the documents have been received by the insurer.
5. Waiver of Premium Rider
This rider assures that under certain circumstances (like critical illness, permanent disability), the future premiums that you have to pay will be waived off. Insurers mainly offer two types of such riders:
a. Waiver of premium on disability
Buying this rider ensures that in case of permanent disability, the policyholder will not have to pay the premium for the term plan in the future. The policy remains active till the end of the tenure, and the sum assured remains the same.
b. Waiver of premium for critical illnesses riders
Under this rider, if the policyholder is diagnosed with one of the critical illnesses mentioned in the policy, then his/her future premiums for the policy will be waived off. The policy will continue till the end of the tenure, and the sum assured remains the same.
6. Income Benefit Rider
The income benefit rider ensures that in case of your death during the policy tenure, your family will receive the sum assured as a monthly income for a fixed tenure. While buying the rider, you have to decide for how many years you want your family to avail this benefit. The family will get a monthly income for that period of time, and not a lump sum amount.
The rider you choose to buy should depend on the nature of your occupation, your age, any pre-existing health conditions, and the needs of the family. For example, a younger wage earner would opt for a longer term insurance plan, with the necessary riders. On the other hand, a person working in a hazardous environment would consider an accidental death rider to be of much importance. Purchasing riders would make your term life insurance policy a little more expensive, but at the same time, they make the policy more comprehensive and thorough. One may face sudden, unforeseen problems in life during which a base term insurance plan may not be able to cover all the needs. In the time of need, these riders might turn out to be extremely beneficial.