A Guide to Choose the Right Life Insurance Riders

What is life insurance? How do life insurance plans function? What are their types? – are some of the frequently googled searches by insurance seekers before zeroing on a specific life insurance policy.

Let us first explain what is life insurance, before we proceed with their functionality, their types and rider benefits. Life insurance is a legal contract between the insurance company and policyholder, wherein the insurer promises to give an assured sum in exchange for the insurance premium, upon the insured’s demise or on completion of a set period. Purpose of such covers is to act as a replacement income for dependents upon the insured’s death, provide as a back up to meet the insured’s post retirement expenses or serve as an investment medium to meet long term financial goals. Remember that there are different insurance plans designed to meet different financial requirements, which include term insurance, ULIPs, endowment policy, money back policy, child insurance policy etc.

Additionally, in life insurance, customization is even allowed as per one’s unique requirements. May it be term, ULIPs, pension, health, or any other policy, all of them can be supplemented with a rider to enhance the insured’s base policy protection.

What is meant by riders in life insurance?

A rider is an add-on benefit to a life insurance plan. It is formed to offer a coverage over and above the primary insurance plan at additional premium. Also, it is a prudent way to enhance policy benefits to match the insured’s requirements.

In simpler words, rider benefits provide financial cover on occurrence of a specific event (as stated in the insurance policy) on top of the sum assured.

What are the distinct kinds of riders?

There are different kind of riders and few of the most common ones are:

1)               Accidental death/permanent disability rider

Accidents at times may result in permanent disability or premature death.  Such events can hamper a family’s financial standing and derail their crucial financial goals. Thus, to protect their financial stability, one can opt for additional accident death/permanent disability cover. Apart from the policy’s base death benefit, such cover provides an additional benefit on permanent disability or death of the insured due to accident.

2)               Critical illness rider

A payout is given to the insured if he is diagnosed with a serious illness. Usually such illnesses are kidney failure, heart attack, cancer of specified severity, paralytic stroke, open chest CABG, major organ or bone marrow transplant, aorta surgery, permanent paralysis or loss of limbs, major burns, blindness, Parkinson’s disease etc.  However, illness lists may vary from insurer to insurer.

3)               Term rider

Provides monthly or lump sum income to dependents (nominee) in the event of the insured’s death. This rider benefit may be equivalent to the base plan cover mentioned in the policy.

4)    Waiver of premium rider

Any permanent disability can impact one’s earning potential, which can hamper a family’s financial stability. In these events, failure to pay insurance premiums may result in the termination of the policy. Waiver of premium rider can be of great help in such instances as adding this rider benefit allows the insurer to waive off all your future base policy premiums to keep the policy benefits intact.

How can you opt for an apt rider benefit?

While all rider benefits ​offer​ specific purposes, it is crucial that you base your selection on complete evaluation of rider benefits and after assessing their importance of being included in your policy. For example, a critical illness rider can be of high importance for those whose family has a history of serious illnesses. Opting for this rider benefit can assist you meet the high treatment expenses of critical diseases. In case you are the sole earner in your family, it is recommended you opt for accidental death/permanent disability and critical illness rider benefit. It is because such covers from policy in most cases come into effect on diagnosis of serious conditions or on sustaining disability. In such conditions, the assured sum from policy can act as replacement income to take care of your dependents and your monthly mandatory expenses.

Note that conditions linked with the base insurance scheme govern aspects like rider term, sum assured and the age at entry. Moreover, the additional premiums paid for health linked rider benefits, like critical illness rider etc., qualifies for tax exemption as per Section 80 D. However, the premiums paid for other rider benefits are eligible for a tax relief as per Section 80 C.

Insurance seekers can take the help of online life insurance premium calculator to know their approximate monthly/annual premium payable after adding in the chosen rider benefit. Such calculators may even enable you to simultaneously compare among different insurance companies to choose the one providing the best offer and optimal cover at lowest premium.