Life Insurance Riders And Their Benefit

Riders are the additional benefits that can be added to a basic insurance policy. They allow you to enhance your insurance cover. Riders can be added for an additional cost which amounts to paying an extra premium, according to your needs. Generally, this premium is low because relatively little underwriting is required. When a claim for the benefits of a rider is made, it can result in the termination of the rider, while the original policy continues to insure you as usual.

           A one size fits all approach does not apply to insurance policies. Therefore, the kind and number of riders added to an individual’s insurance policy depends on the many factors such as the individual’s health, future plans, purpose of the insurance etc.

 Due to intense competition in the insurance space, especially among private insurers, there's a wide range of insurance products available today at really affordable rates. The typical riders you can take are critical illness benefit, waiver of premium benefit, level-term covers and accident and disability benefit, but you can opt for customized riders as well. Today, almost 80 per cent of all policies sold carry at least one rider.

Why are they so popular?

The main reason is that riders offer high value at a low cost, and they offer extra protection without you having to take a second policy. As the premium for the rider goes completely towards the cost of the risk cover rather than towards savings, the premiums on riders tend to be lower than that for the basic policy. Moreover, the administrative cost on policies goes down when a base policy is maintained along with a rider cover. It's a perfect value-for-money match that both insurers and customers look out for today.

You can attach riders to almost any form of insurance policy–endowment, money-back and whole life– under the traditional and unit-linked formats. Typically, insurers let you attach a rider at the time of taking the policy; some also offer you the option to attach a rider at a later date, though the cost at that time may be higher depending on your health condition and your age. However, taking a rider at the inception of a policy is more gainful than taking it at a later date.

Riders at different stages in life can add more value. You can add disability, accident and critical illness rider at an early age. You can take waiver of premium rider in middle age and add critical illness and term insurance riders to pension plans.

What is the right choice?

Riders are not complex, but choosing the right one can prove difficult. That's because of the wide choice on offer; each insurer offers at least three variants, and agents try to get you to take as many as allowed. However, the Insurance Regulatory and Development Authority (IRDA) introduced a rule to check insurance agents from selling riders without rhyme or reason. The premium for all riders together cannot exceed 30 per cent of the premium on the base policy, says IRDA. Also, the tenure of the rider and the base policy has to be same.

When to add a rider?

As with any financial product, it is recommended that you take insurance (particularly term covers) at an early stage in life. In fact, analysts suggest that customers buy critical illness riders at an early age to get the benefit of availability and lower cost. But no matter what your age, riders like accident death and disability benefit are worth the money. If you are buying insurance as a means to save regularly, an endowment product is ideal; but pay a little extra for a term rider as well, so that you are not left stranded in an emergency. The right time for an individual to consider taking riders is, in fact, also the right time for him to consider a life insurance policy. Essentially, that's when he starts earning and he has liabilities or dependants. For instance, when one gets married, one can add accident death cover and critical illness riders to his insurance plan to increase the risk cover. When one reaches middle age, one should opt for riders like waiver of premium and a critical illness cover as well.

What are the tax benefits?

 All riders (other than health and critical illness) get benefits under Section 80C on premium contribution of up to Rs 1 lakh. Health and critical illness riders get Section 80D benefits up to a maximum of Rs 10,000. All rider benefits when coming into effect (claims) are exempt from tax under Section 10(10D).

 
           Here are the most common life insurance riders and what you should know about them:
1.  Guaranteed Insurability Rider
This rider allows you to purchase additional insurance coverage without the need for further medical examination. This rider benefits you when there has been a significant change in your life circumstances, such the birth of your child, marriage or an increase in your income. Another advantage is that in case your health state declines with increasing age, you will be able to apply for extra coverage without giving any evidence of insurability. Sometimes this rider may also provide a renewal of your base policy at the end of its term without medical checkups. This rider may end at a certain age.
2.  Spouse Insurance Rider

This rider offers insurance for your spouse for an additional premium. No new insurance policy is needed in this case.

3. Accidental Death or Double Indemnity Rider
This rider pays out an additional amount if the insured dies as a result of an accident. Normally, the additional amount paid out is equal to the insured amount of the original policy, which doubles the benefit. Therefore, in case of death due to accident, the insured's family gets double the insured sum amount. So, this rider is also called a double indemnity rider.
4. Waiver of Premium Rider
Under this rider, the future premiums are waived off if the insured becomes permanently disabled or loses his or her income as a result of injury or illness prior to a specified age. This rider exempts the insured from paying the premium due on the base policy until he or she is ready to work again. This rider can be particularly beneficial when the premium amount is quite high. This rider prevents the insurance from lapsing. The premium paid for this rider qualifies for tax deduction under section 80D of the IT Act.
5. Family Income Benefit Rider 
This rider provides death benefits and a monthly income to the beneficiary for a specified duration in case the insured dies before the lapse of insurance policy. When buying this rider, one need to determine the number of years the beneficiary is going to receive the monthly income.

6. Accelerated Death Benefit Rider
This rider has the provision to provide advance payment of a portion of insured sum to the policy holder in case he/she is diagnosed with a terminal illness. An accelerated death benefit rider is usually included on most term life insurance policies at no additional cost .These riders are usually a part of only term life insurance polices, since they have no cash value.

9. Return of Premium Rider
This rider has the provision to give back the premium that you put into your policy. Under this rider, premiums are returned back in full at the end of the term, In the event of death, your beneficiaries will receive the paid premium amount.

10. Renewal provision rider
This rider has the provision to renew the policy at the end of its term. No additional proof of insurability is required, in case one decided to renew the policy. Usually, the policy holder is required to renew the policy within a set number of days.

11. Withdrawal provision rider

This rider allows the policy holder to withdraw money from the life insurance policy up to the maximum limit of the amount of the cash value accumulated. However, in doing so, the life insurance policy is reduced by the amount withdrawn.

12. Accident and disability benefit rider

This rider has the provision to cover the risk of the policy holder becoming disabled following an accident. In case of total and permanent disability other benefits other benefits could be provided such as the payment of proportion of the benefits to the insured person every year until he recovers. A waiver of premium benefit can also be provided.

13. Major surgical assistance benefit

This rider provides financial support in the event of medical emergencies that require     surgery. Most insurers exclude claims arising from pre-existing injuries or illnesses and other predefined specific events Also, expenses on hospitalization for ailments that do not require surgery are not covered. The premium paid for this rider qualifies for tax deduction under section 80D of the IT Act.

14. Critical illness rider or dreaded disease rider

This rider has the provision to protect the insured in the event of a critical illness. Generally, the extra cover is equal to the sum assured on the base policy and is paid upon diagnosis of the illness. Diseases covered generally include cancer, coronary artery bypass, heart attack, kidney or renal failure, major organ transplant and paralytic stroke. The premium paid for this rider qualifies for tax deduction under section 80D of the IT Act