Extra cover

The next time you take a new insurance policy, do take a look at the various riders that can be purchased along with life, health and motor insurance policies. If carefully selected, the riders can get the policy holder additional benefits by paying extra premium.

The next time you take a new insurance policy, do take a look at the various riders that can be purchased along with life, health and motor insurance policies. If carefully selected, the riders can get the policy holder additional benefits by paying extra premium.

Riders, commonly known as add-ons, give the policy holder the option to enhance and get additional risk cover. They can sometimes be customised according to one’s needs and bought in conjunction with the base policy at the time of initial purchase and cannot be added later. Riders are mentioned in every product brochure and since they are not covered in the primary policy, a customer has to specifically ask for them by paying an extra amount.

However, policy holders must note that riders are optional and provide pure risk cover and do not have any investment or savings element.

For life insurance, the rider can be waiver of premium, guaranteed insurability, disability income, accidental and accelerated death benefit. The critical illness rider is important in life insurance as it covers heart attack, stroke, cancer and surgery. For motor insurance, the most common rider is the zero-depreciation rider, where the insurance company bears the full cost of damaged parts including the plastic parts, and return to invoice, where the insurer pays for the entire costs in case of theft or an accident where the vehicle is a total loss.

Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance, says riders are an added feature to a basic policy and sometimes give a benefit that is excluded under the base policy or give a totally new benefit. ?Riders should be selected purely on individual requirement. As the policy gets extended to cover the aspects of the rider, the premium for the rider would also be appropriate to the type of rider,? he says.

For example, he explains that a woman below 40 years may opt for a rider of maternity benefit by paying the requisite additional premium.

Typically, riders are bundled with the base policy and do not have any additional administrative charges or customer acquisition charges. In fact, the Insurance Regulatory and Development Authority has now capped that the maximum premium that is paid for riders, which cannot be more than 30% of the base policy cost. Thus, any benefit arising out of an individual rider cannot exceed the basic sum insured.

Analysts say that in most cases where people take an insurance policy, they do not read the details carefully and are not aware of the add-on benefits. Sankar Nath, founder of PolicyTiger, an insurance web aggregator, says the issue in India is that the insurance sales agent is competing on price and wants to convince the prospect to buy an insurance policy by showing him a low price. ?When a rider is added on, the price of the insurance policy goes up. Thus, there is not much thrust on riders at the point of sale, leading to a take-up rate for riders which is far lower than its potential,? says Nath.

The most common rider a policyholder takes is waiver of premium and is most beneficial in child plans. In this policy, the insurer will waive all future premium without compromising on the benefits in case the policyholder does not have the financial capability to continuing paying. The double sum insured rider, which is again mostly seen in child policies, benefits the policyholder in the case of a death to the parent, where the sum insured is paid to the child or the guardian at the time of death of the parent and an additional sum insured is paid once the policy matures.

Next is the critical illness rider, where the sum insured is paid to the life insurance policyholder in case he or she suffers from critical ailment such heart attack, renal failure and cancer.

Before adding this rider, one must check illness covered and the exclusions and must be clear that critical illness benefit rider and a pure mediclaim policy are two separate covers. A critical illness rider enjoys tax benefit under Section 80D and the proceeds received in the case of a claim are tax exempt under Section 10 (10D) of the Income Tax Act. Bimbhet of Royal Sundaram says that with high soaring inflation, the cost of healthcare is also climbing. Riders in such cases not only help individuals by widening the scope of coverage against various risks but also take care of future expenses.

?For those affected with critical illness, the base policy takes care of medical expenses, the additional benefit rider can either take care of high cost of treatment which could not be met with out of base policy or takes care of loss of income when patient is convalescing at home,? says Bimbhet.

Nath of PolicyTiger underlines that critical illness riders become more expensive with age as the probability of contracting a critical disease increases. ?In certain cases, the insurance company would refuse the rider coverage to the insured due to their health conditions at the time of entry. It is always better to buy the critical illness rider at a younger age,? he says.

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First published on: 31-05-2011 at 02:03 IST