7 Important Riders to Buy with a Life Insurance Policy

September 2, 2021 Mutual Fund

With decreased life expectancy ratio over the past few years, securing yourself with a term insurance policy has become an absolute necessity. It is a basic insurance that would offer financial security to your loved ones in your absence, and you can purchase it at an affordable premium. Moreover, to make your basic term plan a wholesome insurance policy, you need term insurance riders.

What are Term Insurance Riders?

Term insurance is a type of life insurance that provides coverage for a certain period, called a term. Hence the name! The riders are the additional benefits that you can be avail of by paying a slightly higher premium. You can easily customise your basic term life insurance policy by adding certain riders as per your requirements.

Remember to analyse your lifestyle before adding the riders to your base plan, understand the potential future risk and choose accordingly.

Although buying a policy loaded with all the benefits is convenient, it unnecessarily increases the premium for the extra features you might not need. The riders let you customise your policy to your requirements. The premium increases only in accordance with the riders you choose to pay for. Therefore, adding suitable riders is as vital as buying a new policy.

What are the benefits of Term Insurance Riders?

1. Term insurance riders provide you with comprehensive coverage towards the specific areas you find high-risk considering your lifestyle.

2. Though the riders can give you the maximum benefit of your base plan, you can buy them at an affordable premium.

3. When you add health-related riders, like Critical Illness, you get the same tax benefits as your base plan under Section 80D of the Income Tax Act.

4. For income-related riders, like Daily Hospital Cash, you get tax benefits under Section 80C of the Income Tax Act.

What are the stipulations pertaining to Riders?

Since different insurance companies offer different riders, the stipulations differ from rider to rider or company to company. Here are some of the standard stipulations pertaining to term insurance riders:

• Life insurance companies do not offer any riders after the policyholder has completed 65 years of age.

• The combined premium of all the health-related riders should not exceed 100% of the premium of your base plan.

• The combined premium of all the other riders should not be more than 30% of the premium of your base plan.

• The sum assured or the benefit arising out of any of the riders (health-related, income-related, or others) should not be more than the sum assured of the base plan.

• Some companies do not allow you to purchase any new riders at the time of renewal. So, you need to purchase all the possibly required riders initially, while purchasing the policy.

What are the most helpful term insurance riders available?

As discussed, every insurance company offers different riders. Here are some of the most helpful riders you should consider adding to your basic term policy.

1. Accidental Death Benefit Rider:

   Accidental Death Benefit is a by-default included in all the term insurance policies. Still, almost all the insurers offer this rider, which means that it provides an 'extra sum assured' in addition to the sum assured in the base plan. An Accidental Death Benefit Rider is offered at a nominal increase in the premium. The sum assured is provided to the nominee against the death of a policyholder due to any kind of accident.

   Accidental deaths are traumatic for the family members and could leave them financially burdened. According to a report submitted by the World Bank in Feb 2021, India accounts for 11% of the global road accidental deaths. It tops the world in road accident deaths, killing one person every 4 minutes. Therefore, Accidental Death Benefit Cover is highly advised if you live in an accident-prone area or frequently travel (from an accident-prone area). Another group of people to whom the Accidental Death Benefit cover is recommended are those who work in/under hazardous conditions.

2. Waiver of Premium Rider:

   Generally, if you are unable to pay the premiums even in the grace period, your term insurance policy lapses and you no longer become eligible to receive the benefits of the policy. In addition, if you are the sole breadwinner of your family, the financial burden on your family is likely to increase.

   The Waiver of Premium Rider can be beneficial when you lose your income due to permanent disability and become incapable of paying your insurance premiums. In such cases, this rider will waive all your future premiums until you are able to pay them. Although you do not pay any premium during the waiver period, you will be eligible for term insurance coverage for the entire policy term.

   Please note that some health insurance companies offer this rider for financial constraints due to any reason. And, they do not limit it to a fall in income due to permanent disability.

3. Critical Illness Rider:

   The number of deaths due to critical illnesses is constantly increasing over the years. The treatment of these illnesses can be out-of-pocket for most people. Some health insurance companies cover a few critical illnesses under their base term plan, mentioned in the policy document. However, about 30-40 illnesses are categorised under critical illnesses, and no base policy covers all of them. If your family has a medical history of critical illness, buying this rider will serve as a good option.

   Before buying the rider, make sure you read the list of critical illnesses covered under the policy, as the list differs from company to company. The critical illness you are willing to cover should be included in the critical illnesses list of the insurer. Critical illnesses are life-threatening, and their treatment can cost you a fortune. Therefore, buying a critical illness cover is an affordable way to secure your savings.

4. Guaranteed Insurability Rider:

   Our need for life insurance coverage increases with different life milestones, like promotion, marriage, kids, etc. However, with increasing age, the health related risk also increases. Therefore, insurance companies mandate the medical check-up as and when you wish to avail of higher coverage. Thus, typically, your term plan insurance premium increases with every term renewal. But, in some instances, the insurance company rejects the renewal after a certain age or if an insured is detected as a high-risk individual.

   The Guaranteed Insurability Rider ensures you get increased insurance coverage whenever you apply, provided that you fulfil income and other criteria. Also, the insurance company cannot reject your application based on general age criteria since it usually has a higher age limit. The most significant advantage of the Guaranteed Insurability Rider is that you can renew your policy without any medical check-ups.

5. Accidental Disability Rider:

   Accidents can make a person permanently or partially disabled, and it can lead to loss of income. Furthermore, this can create a huge financial burden on the insured as there could be substantial expenses for their medical treatment, in addition to their day-to-day expenses.

   Accidental Disability Rider can be helpful in such situations as it not only waives the future premiums, but also provides a rider sum assured in a lump sum. However, some insurers do not waive the future premiums, but provide a rider sum assured to help the insured cope with the accident. Therefore, you must check the rider details before you purchase it.

6. Return of Premium Rider:

   Many people opt for money-back policies instead of term policies because they feel paying a premium and not getting anything on survival is a waste of money. If you are someone with the same attitude, you should opt for Return of Premium rider. The premium that you pay for this rider is considerably higher compared to the basic term plan. This rider ensures that you receive the entire amount of paid premiums back after deducting the taxes on survival.

7. Family Income Benefit Rider:

   The purpose of availing of term life insurance is to financially secure your family in your absence. The Family Income Benefit Rider ensures that your family gets a steady income even if you are not around. Many insurance companies provide multiple options to choose from. You can choose a steady monthly/yearly income or a steady monthly/yearly income along with a sum assured.

Final Words:

We have discussed some of the best term plan riders you can choose from as per your requirements. Make sure you thoroughly read all the documents, understand and compare the riders before you purchase them since the riders and their features differ from insurer to insurer. Although you cannot predict what tomorrow brings, you should analyse the risk areas and choose the best-suited riders along with your basic term insurance policy accordingly.

This article first appeared on PersonalFN here