Riders give you additional protection at a much lower cost without having to go for buying separate insurance plans and paying separate premium for each of them - By Sunil Kumar Singh
They say, life is full of uncertainties and no one knows when a disaster will strike. While we can’t control everything in our lives, there are some things we can help prepare for. Buying a life insurance policy is one of the risk mitigating steps most of us are aware of. But have you ever wished to buy a life insurance plan that would not only take care of your family’s financial needs when you are not around but would also provide greater risk cover at a much lower cost? If your reply is yes, you could go for opting rider benefits.
Riders are optional add-on covers or benefits that can be added with a basic life insurance policy, whether the plainvanilla term insurance, endowment, whole-life, money back or a ULIP plan. Suppose you are a 30-something married working executive with one kid and want to take a life cover of, say, Rs 5 lakh. Apart from the usual benefits of life insurance you also want additional protection(against risks like critical diseases, accidental death, permanent disability benefit, etc rolled into one single plan) but you don’t want to go for buying separate insurance plans. This is where riders come into the picture.
More With Less
Riders allow you to optimize protection offered by your life insurance policy by covering different risks under single plan. The additional benefits however cost a small premium depending on the age of the policyholder. There are various types of riders that are offered by life insurance companies. Let’s take the popular ones one by one.
Critical illness rider:Critical illness rider is broadly a survival benefit and not a death benefit. Suppose a policyholder has bought a life insurance cover of Rs 5 lakh for which the annual premium outgo is Rs 20,000. The insurer is also offering critical illness rider with a sum assured of Rs 3 lakh along with the policy, with an additional premium of Rs 2,000 per year. The benefit of rider is that if the insured is diagnosed of any critical illness, the insurance company pays him the sum assured for critical illness (i.e. Rs 3 lakh) to cover the medical expenses. The base insurance policy however continues even after the critical illness cover ceases to exist.
Accidental death benefit:Accidental death of the insured person is not only emotionally shattering but financially disastrous too for the family/dependents. Under this rider, the insurance company pays an additional amount equivalent to sum assured covered under this benefit over and above the sum assured of the basic life insurance plan in case of the demise of the insured person due to an accident during the term of the rider.
Permanent disability benefit: Some insurance companies offer this rider as a standalone benefit while some club it with accidental death rider. Under this, the insurance company pays a part or whole rider sum assured to the policyholder who has survived in an accident but has become disabled, totally or partly. The sum paid to the policyholder depends upon the disability of the body.
Waiver of premium benefit: As the name suggests, this benefit relieves the policyholder from paying further premium should anything unfortunate happens to him like dreaded disease or death. The policy cover however continues. For instance, under LifeTime Super, LifeTime Plus, SmartKid New and other plans offered by ICICI Prudential life insurance, a policy holder can opt for this rider where on total and permanent disability due to an accident, all future premiums for both the base policy and rider(s) will be waived till the end of the term of the rider or death of the life assured, if earlier.
There are various other riders like income benefit rider, increased death benefit rider, increases in cover rider, accelerated sum assured rider, hospital care rider, and so on.
Take for instance, LIC’s Jeevan Bharati- I, a plan exclusively for women, that offers three optional riders a policyholder can opt for apart from the benefits of life insurance. The first one is the critical illness rider wherein an amount equal to the critical illness rider sum assured is payable in case of diagnosis of defined categories of critical illnesses. Then second is accident benefit rider, wherein an additional amount equal to the accident benefit rider sum assured is payable upon death or total and permanent disability due to accident during the policy term. The third rider benefit that the policy offers is congenital disabilities benefit rider wherein an amount equal to 50% of the rider’s sum assured is payable if the life assured gives birth to a child with specified congenital disabilities.
Tailor it to Your Needs
It is not necessary for you to opt for riders if your life cover is big enough, say experts. “It (rider) is a trade-off between maintaining a number of plans or taking one plan with a slightly higher cost. In some cases, especially in child plans etc. the waiver of premium can be a very useful tool. Yes, if you are insurance-savvy you would go in for separate plans for most of these options,” says Deepak Yohannan, CEO, MyInsuranceClub. com, an insurance price and feature comparison website.
Another important point is that you should not take riders that you do not actually need. Additional rider benefits come with additional charges that inflate your cost of premium. Therefore opt only for those riders that you actually need to keep premium costs low.
As Jitendra P.S. Solanki, Founder, JS Financial Advisors, New Delhi, maintains, “The riders are optional features. But the choice of life insurance rider should be made only after evaluating your need and comparing it with other alternatives. Some of the riders like Income Benefit or Premium Waiver are beneficial to policyholders as it pertains to the specific product. But Accidental Death & Disability Rider or Critical Illness relates more to health. Illnesses like these are also covered through policies from health insurance companies with comprehensive features, and so one should evaluate them.”
The long and short of it is that though riders can add value to your insurance policy, it’s better to compare the associated benefits of each riders being offered before you take any decision.
There is another advantage of riders — tax saving. There are riders like critical illness that make you eligible to claim tax deductions under Section 80C (on the premium paid) as well as Section 80D (related to health insurance) of the income tax Act.
Strings Attached
Riders however do not come without certain terms and conditions. For instance, most of the insurance companies offer riders at inception only and not after two, four or five months after the policy is issued. So if you want a rider benefit don’t forget to go for it upfront while buying the policy. Moreover, many companies allow policyholders to withdraw any rider at a later stage, but once the rider is withdrawn it cannot be taken again.
Further, though there is no limit on the number of riders you could opt for but, as per regulations, there is a limit on the premium amount you pay for riders — that is, the premium amount of all riders in a single policy should not go beyond 30% of the premium of the base insurance policy.
Moreover, as per regulations, the sum assured under each rider should not exceed the base sum assured of the policy. In both cases, if the premium amount and the sum assured overshoot the prescribed limit then the rider won’t be offered by the insurance company.
And lastly, as Solanki points out, some riders like critical illness are once-in-alifetime payment, which means the amount is paid on the diagnosis/ occurrence of the respective illness and the rider ceases to exist. This is unlike health insurance plans where some of the riders are renewable. Further, he adds, the features of these riders are very limited compared to comprehensive standalone products where the scope of coverage is wider.