You can choose to add some extra benefits to your basic life insurance cover in your insurance policy, by paying additional premium. These additional benefits are called insurance riders. Generally the extra premium for the riders is relatively low, since the extra premium goes towards covering the risk mentioned in the rider and not to savings. It is important to note that, the riders do not change the basic life insurance plan and the nominees of the insured will get that sum assured in the event of an unfortunate death of the insured. When a claim is made for the benefits of a rider, it can result in the termination of the rider, while the original life insurance policy continues for the insured.
A wide range of insurance riders are now available in the market at competitive rates. Riders are very popular and most life insurance policies have one or more riders attached to them. But are life insurance riders beneficial for you? It depends on your personal situation and your other insurance policies. However, some riders are almost always very useful. In this article, we will discuss some useful life insurance riders.
Permanent & Partial Disability: With this rider, you will get a certain percentage of the sum assured on regular basis, if you become permanently or temporarily disabled due to accident and can't work. This rider acts as a regular income in the event of a disability. The insurance policy specifies the amount of the income and whether it's paid for a certain amount of time or for the length of the disability. Most life insurance policies pay periodically for next 10 years a certain percentage of sum assured (e.g. 10% of Sum Assured per year for next 10 yrs). Please note that this rider is applicable only if the disability is caused by an accident.
Waiver of Premium Rider: With this rider, you don't have to pay the premium if you become totally disabled due to injury or illness and can't work. This rider can be particularly beneficial when the premium amount is quite high and prevents the policy from lapsing if the insured is unable to pay premiums due a disability. Please note that this rider expires at a specified age. You should carefully read the wording of this rider in the policy document.
Critical Illness Rider: This rider protects the insured in the event of a critical illness like Heart Attack, Cancer, Stroke, By-pass Surgery, Kidney failure, Paralysis etc. This rider pays out a lump sum amount if the insured is diagnosed with a specified illness, mentioned in the policy. Generally, the extra cover is equal to the sum assured on the base policy and is paid upon diagnosis of the illness.
Accidental Death Rider: With this rider the insured gets an extra amount, in addition to the sum assured if an accident results in the death of the insured. A common misconception among insurance buyers regarding this rider is that the insured will get death benefits, only if the cause of death is an accident. It is not true. The insured will get the sum assured in the event of unfortunate death, whatever the cause. If the cause of death is an accident then the insured will get an additional amount specified in the rider of the life insurance policy. However, if the sum assured in the basic policy is adequate for the needs of the family of the insured (please read our article, How much life insurance is adequate), then the insured need not buy this rider. Though in most cases, this is a very useful rider.
Guaranteed Insurability Rider: This rider allows the insured to buy additional life insurance coverage at a later date without the need for further medical examination or providing any evidence about insurability. As we age our health state becomes more unpredictable and if the insured contracts a serious illness like a heart disease or cancer, the life insurance company can increase the premium substantially for insurance coverage. With this rider, the insurance company considers only the age of insured for setting the premium, but not his or her health.
Other Life Insurance Riders
There are several other insurance riders like Spouse Insurance, Family Income benefit, Return of Premium, Renewal Provision, Withdrawal Provision, Surgical Assistance etc. The usefulness of these will depend on your personal situation and your other insurance policies. Remember riders come at a cost. So you should ask yourself or consult with a financial adviser, if you really need the rider.
Tax Benefit of Riders
All riders (other than critical illness) get tax benefits under Section 80C of the Income Tax Act on premium contribution of up to Rs 1 lac (Rs 1.5 lac as per the new Budget). Additionally, the premium paid for the critical illness rider qualifies for deduction from taxable income under Section 80D of the Income Tax Act up to the limit of Rs 15,000 (Rs 20,000 for senior citizens). Insurance buyers should also note that premium paid for waiver of premium rider also qualifies for deduction under Section 80D.
In this article, we have discussed some useful life insurance riders that you can consider adding on to your life insurance policy. Riders like Permanent or Partial disability and Accidental Death are useful at almost any age. Whereas critical illness, waiver of premium and guaranteed insurability riders are more useful as the insured approaches middle age. Read the policy document of the company for exact wordings. Due to competition in the Indian insurance industry, the life insurance companies are offering various products at very competitive rates. You should always compare plans of different companies before buying your life insurance policy.